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[]{.mark}

**Regulatory Assessment**

**Regulatory Flexibility Analysis**

Interim Final Rulemaking

Hazardous Materials: Enhancing Rail Transportation Safety and Security
for Hazardous Materials Shipments
**\[**[**PHMSA-RSPA-2004-18730**](http://www.regulations.gov/fdmspublic/custom/jsp/search/searchresult/docketSearchResult.jsp)**\]**

###### April 2008

**Prepared by**

**Federal Railroad Administration**

**Department of Transportation**

Hazmat Security

[Table of Contents]{.underline}

[I. EXECUTIVE SUMMARY 1](#i.-executive-summary)

[II. SUMMARY OF INTERIM FINAL RULE
5](#ii.-summary-of-interim-final-rule)

[A. Description of Existing Security Plan Rule
6](#a.-description-of-existing-security-plan-rule)

[B. Summary of Enhancements to Existing Rule
7](#b.-summary-of-enhancements-to-existing-rule)

[C. Current Railroad Industry Practices and Government Initiatives
8](#c.-current-railroad-industry-practices-and-government-initiatives)

[1. AAR Recommended Railroad Operating Practices for Transportation of
Hazardous Materials
8](#aar-recommended-railroad-operating-practices-for-transportation-of-hazardous-materials)

[2. Terrorism Risk Analysis and Security Management Plan
9](#terrorism-risk-analysis-and-security-management-plan)

[3. Railroads Assist Communities in Developing and Evaluating Emergency
Response Plans
9](#railroads-assist-communities-in-developing-and-evaluating-emergency-response-plans)

[4. Research and Development Efforts to Enhance Tank Car and Hazmat
Safety
10](#research-and-development-efforts-to-enhance-tank-car-and-hazmat-safety)

[5. PHMSA Risk Management Self-Evaluation Framework (RMSEF)
10](#phmsa-risk-management-self-evaluation-framework-rmsef)

[6. Freight Rail Security Program 10](#freight-rail-security-program)

[7. Security Plan Templates and Guidelines
11](#security-plan-templates-and-guidelines)

[D. General Benefits of Enhancements to Existing Rule
11](#d.-general-benefits-of-enhancements-to-existing-rule)

[III. STATEMENT OF NEED FOR THE ACTION
13](#iii.-statement-of-need-for-the-action)

[A. Alternative Regulatory Approaches
15](#a.-alternative-regulatory-approaches)

[1. Different Compliance Dates 15](#different-compliance-dates)

[2. Different Enforcement Methods 15](#different-enforcement-methods)

[3. Different Requirements for Different Sized Firms
16](#different-requirements-for-different-sized-firms)

[4. Different Requirements for Different Geographic Regions
16](#different-requirements-for-different-geographic-regions)

[5. Performance Standards Rather than Design Standards
16](#performance-standards-rather-than-design-standards)

[6. Market-Oriented Approaches Rather than Direct Controls
17](#market-oriented-approaches-rather-than-direct-controls)

[7. Informational Measures Rather than Regulation
17](#informational-measures-rather-than-regulation)

[IV. AN EXAMINATION OF ALTERNATIVE APPROACHES
18](#iv.-an-examination-of-alternative-approaches)

[A. Evaluation of Alternative Regulatory Approaches
18](#a.-evaluation-of-alternative-regulatory-approaches)

[1. The Preferred Option 18](#the-preferred-option)

[2. More Stringent Option 18](#more-stringent-option)

[3. Less Stringent Option 18](#less-stringent-option)

[B. Status Quo (Do Nothing) 18](#b.-status-quo-do-nothing)

[V. EVALUATION OF THE BENEFITS AND COSTS
19](#v.-evaluation-of-the-benefits-and-costs)

[A. General Principles 19](#a.-general-principles)

[1. Scope of Analysis 19](#scope-of-analysis)

[2. Assumptions 20](#assumptions)

[3. Baseline 20](#baseline)

[4. Discounting 20](#discounting)

[B. Benefit Estimates 21](#b.-benefit-estimates)

[1. Effectiveness 23](#effectiveness)

[a. The Effectiveness Metric for Public Health and Safety Rulemakings
23](#a.-the-effectiveness-metric-for-public-health-and-safety-rulemakings)

[b. Number of Lives Saved (Fatality Risks)
23](#b.-number-of-lives-saved-fatality-risks)

[c. Potential Injuries Averted (Nonfatal Health and Safety Risks),
Impact on Morbidity
23](#c.-potential-injuries-averted-nonfatal-health-and-safety-risks-impact-on-morbidity)

[2. Distributional Effects 25](#distributional-effects)

[C. Methods of Estimating Benefits
25](#c.-methods-of-estimating-benefits)

[1. Historical Accident Data 26](#historical-accident-data)

[2. Benefit Summary 27](#benefit-summary)

[a. Fatalities 27](#a.-fatalities)

[b. Injuries 27](#b.-injuries)

[c. Evacuees 27](#c.-evacuees)

[d. Property damage 27](#d.-property-damage)

[e. Environmental cleanup 28](#e.-environmental-cleanup)

[f. Track delay, rerouting, and associated out-of-service expenses
28](#f.-track-delay-rerouting-and-associated-out-of-service-expenses)

g\. Incident
summary..............................................................................\...28

[D. Cost Estimates 29](#d.-cost-estimates)

[1. Cost Estimate of Enhancements to Existing Security Plan Regulation
29](#cost-estimate-of-enhancements-to-existing-security-plan-regulation)

[a. Annual Data Collection by Line Segment
30](#a.-annual-data-collection-by-line-segment)

[b. Primary Safety and Security Route Analyses (Year 1)
31](#b.-primary-safety-and-security-route-analyses-year-1)

[c. Annual Primary Safety and Security Route Analyses (Years 2-20)
33](#c.-annual-primary-safety-and-security-route-analyses-years-2-20)

[d. Alternate Route Economic, Safety, and Security Analyses (Year 1)
34](#d.-alternate-route-economic-safety-and-security-analyses-year-1)

[e. Alternate Route Economic, Safety, and Security Analyses (Years 2-20)
35](#e.-alternate-route-economic-safety-and-security-analyses-years-2-20)

[f. Annual Update of Safety and Security Plan (Years 1-20)
36](#f.-annual-update-of-safety-and-security-plan-years-1-20)

[g. Storage and Delays in Transit Notifications/System Setup (Year 1)
37](#g.-storage-and-delays-in-transit-notificationssystem-setup-year-1)

[h. Anticipated Storage and Delay in Transit Notification (Years 1-20)
38](#h.-anticipated-storage-and-delay-in-transit-notification-years-1-20)

[i. Security Inspection Training (Years 1, 4, 7, 10, 13, 16, and 19)
38](#i.-security-inspection-training-years-1-4-7-10-13-16-and-19)

[2. Total 20-Year Costs 39](#total-20-year-costs)

[a. Large Railroads 41](#a.-large-railroads)

[b. Smaller Railroads 42](#b.-smaller-railroads)

[3. Total 20-Year Cost 43](#total-20-year-cost)

[4. Sensitivity Analysis 43](#sensitivity-analysis)

[a. Labor Rate 43](#a.-labor-rate)

[b. Discount Rates 44](#b.-discount-rates)

[E. Specialized Analytical Requirements
45](#e.-specialized-analytical-requirements)

[1. Impact on Small Businesses and Other Small Entities
45](#impact-on-small-businesses-and-other-small-entities)

[a. Small Entities Affected 46](#a.-small-entities-affected)

[b. Reporting, Record-keeping, and Other Compliance Requirements
47](#b.-reporting-record-keeping-and-other-compliance-requirements)

[c. Impacts 47](#c.-impacts)

[d. Alternative Treatment for Small Entities
47](#d.-alternative-treatment-for-small-entities)

[e. Outreach to Small Entities 47](#e.-outreach-to-small-entities)

[f. Conclusion 47](#f.-conclusion)

# I. EXECUTIVE SUMMARY 

The Pipeline and Hazardous Materials Safety Administration (PHMSA) of
the U.S. Department of Transportation (DOT) establishes standards for
the safe and secure movement of hazardous materials (hazmat) by all
transportation modes, including the nation\'s railroads. The Hazardous
Materials Regulations (HMR; Title 49 Code of Federal Regulations (CFR)
Parts 171-180) are designed to achieve three goals: (1) to ensure that
hazardous materials are packaged and handled safely during
transportation, thus minimizing the possibility of their release should
an incident occur, (2) to ensure that the security risks associated with
the transportation of hazardous materials in commerce are addressed, and
(3) to effectively communicate to carriers, transportation workers, and
emergency responders the hazards of the material being transported. The
HMR also include operational requirements applicable to each mode of
transportation.

Hazardous materials are essential to the economy of the United States
and the well-being of its people. Hazardous materials fuel motor
vehicles, purify drinking water, and heat and cool homes and offices.
They are also used for farming and medical applications and in
manufacturing, mining, and other industrial processes. Thus, the
transportation of hazardous materials is unavoidable. Railroads carry
over 1.7 million shipments of hazardous materials annually, including
millions of tons of explosive, poisonous, corrosive, flammable and
radioactive materials. These shipments frequently move through densely
populated or sensitive areas where the consequences of an incident could
be the loss of life or serious environmental damage.

The same characteristics of hazardous materials that cause concern in
the event of an accidental release also make them attractive targets for
terrorism or sabotage. Hazardous materials are often transported in
substantial quantities and are potentially vulnerable to sabotage or
misuse. Such materials are already mobile and are routinely transported
in proximity to large population centers. Further, security of hazardous
materials in the transportation environment poses unique challenges as
compared to security at fixed facilities. Hazardous materials in
transportation often bear clear identifiers to ensure their safe and
appropriate handling during transportation and to facilitate
identification and effective emergency response in the event of an
accident or release; these identifiers may also identify hazardous
materials shipments as targets of opportunity for terrorists or other
criminals.

A primary safety and security concern involving the rail transportation
of hazardous materials is the prevention of a catastrophic release in
proximity to densely populated urban areas, events or venues with large
numbers of people in attendance, iconic buildings, landmarks, or
environmentally-significant areas. Such a catastrophic event could be
the result of an accident such as the January 6, 2005 derailment and
release of chlorine in Graniteville, South Carolina, or a deliberate act
of terrorism. The causes of intentional and unintentional releases of
hazardous material are very different; however, in either case, the
potential consequences of such releases are both significant.

On March 25, 2003, PHMSA published a final rule titled, "Hazardous
Materials: Security Requirements for Offerors and Transporters of
Hazardous Materials" (HM-232).[^1] The HM-232 regulations added a new
Subpart I to Part 172 of the HMR to require persons who offer for
transportation or transport certain hazardous materials in commerce to
develop and implement security plans. A security plan must include an
assessment of possible transportation security risks for shipments of
the covered hazardous materials and appropriate measures to address the
assessed risks. At a minimum, a security plan must include measures to
address personnel security, unauthorized access, and en route security.

The goal of this rulemaking is to build on the security plan
requirements in Subpart I of Part 172 of the HMR to implement enhanced
security requirements that will be effective in preventing hazardous
materials from being used as tools of destruction and terror while
permitting continued transportation of these essential commodities. On
August 16, 2004, PHMSA issued a notice requesting comments regarding the
need for enhanced security requirements for the rail transportation of
hazardous materials that pose a toxic inhalation hazard (TIH materials);
TIH materials are also known as poisonous by inhalation (PIH) materials.
See 69 FR 50988. On December 21, 2006, PHMSA published a notice of
proposed rulemaking (NPRM) under Docket HM-232E. The NPRM proposed
clarifications and enhancements to the existing security regulations,
and identified certain types of hazardous materials for which enhanced
security measures would be required. Rail carriers transporting the
identified materials would be required to annually gather commodity
data, to analyze the routes used to transport these materials and, in
each case, the next most commercially practicable alternative route over
which the carrier has authority to operate, and, after factoring in
remediation measures the carrier would implement, select the route
posing the least safety and security risk. Railroads would also be
required to address en route storage, delays in transit, and delivery
notification for shipment of these hazardous materials. Finally,
railroads would be required to inspect placarded hazardous material cars
for signs of tampering or suspicious items, including an improvised
explosive device (IED).

The interim final rule also implements the requirements of the 9/11
Commission Act. To achieve both enhanced safety and security, the
railroads must effectively evaluate their existing routes, practicable
alternative routes and, after taking into consideration mitigation
measures that the carrier will implement, select the route posing the
least safety and security risk. Rerouting without performing analysis
and considering mitigation measures simply shifts the risk from one
community to another.

PHMSA, working closely with the Federal Railroad Administration (FRA),
developed this regulatory analysis in accordance with Executive Order
12866. This document estimates the costs and consequences of the interim
final rule, as well as its anticipated economic and safety benefits. A
copy of this document has been placed in the docket for this rulemaking.
The following is a summary of our findings.

The freight rail industry has addressed security in many ways since
September 11, 2001, including implementation of numerous countermeasures
to improve the security of the industry. For example, the rail industry
restricted access to facilities and information and significantly
increased cyber-security procedures and techniques. Railroads compared
employee records with FBI terrorist lists. Security briefings, like
safety briefings, became a daily part of many employees' jobs. In
addition to the police forces maintained by major railroads to help
assure the security of employees, property, and freight, the industry
established a Railroad Security Task Force that includes representatives
of large U.S. railroads, Canadian, and Mexican railroads, and shortline
and regional railroads.

A comprehensive Terrorism Risk Analysis and Security Management Plan
developed by the Association of American Railroads (AAR) provides a 24/7
priority-based blueprint of actions designed to enhance the security of
the Nation's freight rail network. The plan has been in place since
December 6, 2001, and is periodically evaluated and modified. The
Railway Alert Network monitors threat information and alerts the
industry to changes in threat.

The railroads have also established programs and procedures designed to
respond to, mitigate, and minimize the impact of dangerous and unusual
incidents. Railroads work to ensure the continued safety of hazardous
materials transport in numerous ways. For example, railroads provide
rigorous tank car quality assurance programs, field testing, and
inspections of chemical loading facilities; assist communities in
developing and evaluating emergency response plans; and provide hazmat
training for emergency responders.

To the extent that the enhanced security programs adopted by the
railroad industry include some of the measures in this interim final
rule, this analysis does not include the costs incurred by the industry
to develop and implement these measures. This regulatory evaluation
recognizes these voluntarily incurred costs as already paid by the rail
industry. Where the industry will incur additional incremental costs as
a result of specific requirements in this interim final rule, these
incremental costs are included in this regulatory analysis.

Costs that may be incurred due to enhancements and clarifications to the
current security regulations are presented below. These costs are
associated with required data retention and use, the performance of
primary route safety and security analyses, analyses of alternate
routes, notification of unusual delays in transit, and annual updating
of the existing security plan. The table below presents the estimated
20-year monetary costs associated with complying with the enhanced
requirements contained in 49 CFR Part 172, at a discount rate of 7
percent.

  -------------------------------------------- --------------------------
  **Total 20-Year Costs (Discounted 7%)**      

  Data compilation                             \$3,583,052.41

  Primary route analyses                       \$4,017,419.16

  Alternate route analyses                     \$2,395,414.53

  Annual updating of security plan             \$917,673.85

  Delay notification set-up and annual         \$48,855.17
  notifications                                

  Security inspection training                 \$6,449,709.60

  **TOTAL**                                    **\$17,412,124.73**
  -------------------------------------------- --------------------------

PHMSA's analysis determines that over a 20-year period the discounted
costs would be less than \$18 million.

The major benefits resulting from this interim final rule relate to
enhanced safety and security of rail shipments of hazardous materials.
We expect this interim final rule to reduce fatalities, injuries, and
property and environmental damage resulting from rail accidents
involving hazardous materials. Safety benefits were calculated in terms
of the decline in the risk of certain accidents and their consequences,
We based our analysis on the chlorine accident occurring in
Graniteville, SC, in January of 2005. The following table summarizes the
number of deaths, injuries, evacuations, property damages, environmental
cleanup of diesel fuel only, and track out of service values for this
accident:

  ----------------------- ----------------------- --------------------------
  Rail Hazardous Material                         
  Incident Summary                                

  [Damage:]{.underline}                           [Valuation:]{.underline}

  Fatalities:             9                       \$27,000,000

  Injuries:               554                     \$35,211,000

  Evacuation:             5,400                   \$10,470,000

  Property Damage:                                \$6,900,000

  Environmental Cleanup:  (Diesel fuel only)      \$152,132

  Track Out of Service:   23 days                 \$46,000,000

  **Total Value:**                                **\$125,733,132**
  ----------------------- ----------------------- --------------------------

Estimating the security benefits of the new interim final rule
requirements is challenging. Accident causation probabilities based on
accident histories can be estimated in a way that the chances of
criminal or terrorist acts cannot. The threat of an attack is virtually
impossible to assess from a quantitative standpoint. Although this
rulemaking is intended to reduce the risk that hazardous materials in
transportation will be targets of terrorism or sabotage, the probability
that hazardous materials will be targeted is, at best, a guess.
Similarly, the projected outcome of a terrorist attack cannot be
precisely estimated. It is assumed that choices will be made to maximize
consequences and damages. To date, there have been no known or specific
threats against U.S. freight railroads, rail cars, or tank cars, which
make all of these elements even more difficult to quantify. However,
because the fact that an event is infrequent or has never occurred does
not diminish the risk or possibility that such an event will occur. The
use of threat-based counter measures has the potential to greatly reduce
the ability of adversaries to effectively carry out efficient attacks.

PHMSA recognizes that the effectiveness of security plans and,
therefore, the benefits to be gained from their use will vary by
circumstance (e.g., train speed and length, route, population, grade
crossings, etc.). Thus, forecasting the benefits that would likely
result from the interim final rule requires the exercise of judgment and
necessarily includes subjective elements. Benefit estimates were based
on the reduction in risks of hazardous material releases. PHMSA
estimates that if the measures in this interim final rule prevent one
accidental release similar to the 2005 Graniteville accident or an
equally severe intentional release, the benefits accruing from the
interim final rule would far exceed its estimated costs. As detailed in
the table above, the 2005 Graniteville, SC, accident resulted in costs
totaling \$126 million.

# II. SUMMARY OF INTERIM FINAL RULE

Approximately 1.7 million carloads of hazardous materials are
transported by rail throughout the United States each year;
equivalently, thousands of carloads of hazardous materials are in
transit every day. About 139 rail carriers offer for transportation or
transport hazardous materials to which these regulatory clarifications
and enhancements apply. Of these, about 39 are large businesses, using
definitions established for Class I and Class II (regional) rail
carriers.[^2] There are seven privately owned major freight railroad
systems, referred to as Class I railroads. These Class I railroads
account for 71 percent of the industry's mileage operated, 89 percent of
its employees, and 93 percent the industry's total freight revenue[^3].
The remainder of the privately owned rail system is comprised of 32
regional and over 500 local (short line or switching and terminal)
railroads. For the purpose of this analysis, the regional railroads are
referred to as Class II, and all smaller railroads are referred to as
Class III.

**Rail Carriers Subject to Rule**

  -----------------------------------------------------------------------
  **Number of Affected Rail Carriers by Size**

  39 large entities

  100 small entities

  139 total
  -----------------------------------------------------------------------

## A. Description of Existing Security Plan Rule

Subpart I of Part 172 of the HMR requires persons who offer for
transportation or transport certain hazardous materials in commerce to
develop and implement security plans. Security awareness training is
also required for all hazardous materials employees, and in-depth
security training is required for hazardous material employees of
persons required to develop and implement security plans.

The security plan regulations require persons who offer for
transportation or transport the following hazardous materials to develop
and implement security plans:

1.  Materials that must be placarded under the HMR;

2.  Shipments in bulk packaging with a capacity equal to or greater than
    13,248 L (3,500 gal) for liquids or gases or greater than 13.24
    cubic meters (468 cubic feet) for solids; and

3.  Infectious substances listed as select agents by the Centers for
    Disease Control and Prevention (CDC) in 42 CFR Part 73.

Thus, rail carriers that transport any of the above materials in
commerce must develop and implement security plans. The security plan
must include an assessment of possible transportation security risks and
appropriate measures to address the assessed risks. Specific measures
implemented as part of the plan may vary commensurate with the level of
threat at a particular time. At a minimum, the security plan must
address personnel security, unauthorized access, and en route security.
For personnel security, the plan must include measures to confirm
information provided by job applicants for positions that involve access
to and handling of the hazardous materials covered by the plan. For
unauthorized access, the plan must include measures to address the risk
that unauthorized persons may gain access to materials or transport
conveyances being prepared for transportation. For en route security,
the plan must include measures to address security risks during
transportation, including the security of shipments stored temporarily
en route to their destinations.

As indicated above, the HMR requirement for a security plan sets forth
general requirements for a security plan's components rather than a
prescriptive list of specific items that must be included. The
regulation sets a performance standard that provides offerors and
carriers with the flexibility necessary to develop plans that address
their individual circumstances and operational environments.
Accordingly, each security plan will differ because it will be based on
a company's individualized assessment of the security risks associated
with the specific materials it ships or transports and its unique
circumstances and operational environment.

With respect to delays in transportation, rail carriers are currently
required to expedite the movement of shipments of hazardous materials,
as detailed in § 174.14 of the HMR. Each shipment of hazardous materials
is to be forwarded "promptly and within 48 hours (Saturdays, Sundays,
and holidays excluded)" after acceptance of the shipment by the rail
carrier. If only biweekly or weekly service is performed, the carrier
must forward a shipment of hazardous materials in the first available
train. Additionally, carriers are prohibited from holding, subject to
forwarding orders, tank cars loaded with Division 2.1 (flammable gas),
Division 2.3 (poisonous gas) or Class 3 (flammable liquid) materials.
The purpose of § 174.14 is to help ensure the prompt delivery of
hazardous materials shipments and to minimize the time that the
materials spend in transportation, thus minimizing the exposure of
hazmat shipments to accidents, derailments, or unintended releases.

## B. Summary of Enhancements to Existing Rule

The interim final rule implements the requirements of the 9/11
Commission Act and responds to comments on the NPRM. PHMSA is requiring
the following revisions to the security plan provisions:

-   We require a rail carrier transporting certain types of hazardous
    materials (materials that DHS has determined to be
    security-sensitive) to annually compile information and data on the
    commodities transported, including the transportation routes over
    which these commodities are transported.

-   We require a rail carrier transporting security-sensitive materials
    to use the data it compiles to annually analyze the safety and
    security risks for the route(s) used to transport a
    security-sensitive material. In performing this analysis the rail
    carrier must seek relevant information from State, local, and tribal
    officials, as appropriate, regarding security risks to
    high-consequence targets and the communities' emergency response
    capability, along, or in proximity to, the route(s) utilized. Rail
    carriers are also required to use the data to analyze the safety and
    security of all practicable alternative routes which the carrier is
    authorized to use. When determining practicable alternative routes,
    the rail carrier must consider the use of interchange agreements
    with other rail carriers and the potential economic effects of using
    the alternative route. The carrier must also consider any
    remediation measures implemented on a route. Using this process, the
    carrier must at least annually review and select the practicable
    route posing the least overall safety and security risk. The initial
    analysis and route selection must include a comprehensive review of
    a carrier's entire system. Subsequent analysis and route selection
    determinations must include a comprehensive, system-wide review of
    all operational changes, infrastructure modifications, traffic
    adjustments, countermeasures, changes in the nature of
    high-consequence targets located along, or in proximity to, the
    route and changes to community response capabilities, or other
    changes affecting the safety or security of the movements of the
    security-sensitive materials that were implemented during the
    calendar year. Rail carriers are required to maintain a copy (or
    electronic image thereof) of the data collected and the routing
    analysis for at least two years and make the records available upon
    request to authorized officials of the Departments of Transportation
    and Homeland Security.

-   We require rail carriers to specifically address the security risks
    associated with security-sensitive shipments delayed in transit or
    temporarily stored in transit as part of their security plans.

-   We require rail carriers transporting security-sensitive materials
    to notify consignees if there is a significant unplanned delay
    affecting the delivery of the materials.

-   We require rail carriers to conduct visual security inspections at
    ground level of rail cars containing hazardous materials to inspect
    for signs of tampering or the introduction of an IED.

This rule addresses both safety and security concerns associated with
the transportation of certain types of hazardous materials. Safety and
security must be considered together, particularly because a given
security measure could have a potentially negative impact on overall
transportation safety. Routing and hazard communication are two obvious
examples. In our view, attempting to separate safety from security could
result in significant problems for the regulated industry and could have
an adverse impact on *both* security and safety.

## C. Current Railroad Industry Practices and Government Initiatives

Security of hazardous materials in the transportation environment poses
unique challenges, compared to security at fixed facilities. Hazardous
materials are frequently transported in substantial quantities. Such
materials are already mobile and may be transported in proximity to
large population centers. No one disputes that efforts should be made to
increase hazardous material safety and security where practical. More
than 90 percent of railroads operating in the United States are
privately owned corporations that receive no appreciable government
funding. In addition to complying with current DOT regulations requiring
the implementation of approved hazardous material security plans, the
rail industry is directly involved in several initiatives to further
enhance the safety and security of hazardous materials
transportation.[^4] The Federal Government has also partnered with the
industry to develop transportation security initiatives.

### 1. AAR Recommended Railroad Operating Practices for Transportation of Hazardous Materials

The rail industry, through the AAR, has developed a detailed protocol on
recommended railroad operating practices for the transportation of
hazardous materials. The AAR issued the most recent version of this
document, known as Circular No. OT-55-I (OT-55-I), on August 26, 2005.
OT-55-I details railroad operating practices for: (1) designating trains
as "key trains" that contain (i) five tank car loads or more of PIH
materials, (ii) 20 car loads or intermodal portable tank loads of a
combination of PIH, flammable gas, Class 1.1 or 1.2 explosives, and
environmentally sensitive chemicals, or (iii) one or more car loads of
spent nuclear fuel or high-level radioactive waste; (2) designating
operating speed and equipment restrictions for key trains; (3)
designating "key routes" for key trains, and setting standards for track
inspection and wayside defect detectors; (4) yard operating practices
for handling placarded tank cars; (5) storage, loading, unloading and
handling of loaded tank cars; (6) assisting communities with emergency
response training and information; (7) shipper notification procedures;
and (8) the handling of time-sensitive materials. These recommended
practices were originally implemented by all of the Class I rail
carriers operating in the United States; the most recent version of the
circular also includes shortline railroads as signatories.

OT-55-I defines a "key route" as:

> Any track with a combination of 10,000 car loads or intermodal
> portable tank loads of hazardous materials, or a combination of 4,000
> car loadings of PIH (Hazard zone A, B, C, or D), anhydrous ammonia,
> flammable gas, Class 1.1 or 1.2 explosives, environmentally sensitive
> chemicals, Spent Nuclear Fuel (SNF), and High Level Radioactive Waste
> (HLRW) over a period of one year.
>
> Any route defined by a railroad as a key route should meet the
> standards contained in OT-55-I. For example, wayside defective wheel
> bearing detectors should be placed at a maximum of 40 miles apart, or
> an equivalent level of protection may be installed based on
> improvements in technology. Main track on key routes should be
> inspected by rail defect detection and track geometry inspection cars
> or any equivalent level of inspection at least twice each year.
> Sidings on key routes should be inspected at least once a year; and
> main track and sidings should have periodic track inspections that
> will identify cracks or breaks in joint bars. Further, any track that
> is used for meeting and passing key trains should be FRA Class 2 track
> or higher. If a meet or pass must occur on less than Class 2 track due
> to an emergency, one of the trains should be stopped before the other
> train passes. The enhancements to the existing security rule partly
> reflect the recommended practices mentioned above, which are already
> in wide use across the rail industry.

### 2. Terrorism Risk Analysis and Security Management Plan

In December 2001, the AAR Board of Directors established the Railroad
Security Task Force with the full participation of AAR members,
including the Canadian and Mexican members, and the American Short Line
and Regional Railroad Association. The Railroad Security Task Force
conducted a risk analysis of the industry and developed the Terrorism
Risk Analysis and Security Plan. It is a comprehensive, priority-based
blueprint of actions designed to enhance freight rail security.
Additionally, knowledgeable railroad personnel work side-by-side with
government security personnel supporting both the National Joint
Terrorism Task Force and the Department of Homeland Security's efforts
to evaluate intelligence at the Top Secret level, serving as subject
matter experts for the rail industry.

### 3. Railroads Assist Communities in Developing and Evaluating Emergency Response Plans

Railroads assist communities in developing and evaluating emergency
response plans, and provide training for emergency responders. In 2004,
Class I railroads trained over 22,000 people, primarily first
responders. CSX Transportation also provided various outreach programs
and Community Awareness Planning Guides to 15,000 emergency management
personnel and conducted 21 crisis management exercises. TRANSCAER®
(Transportation Community Awareness and Emergency Response) is a
nationwide community outreach program that focuses on assisting
communities in preparing for, and responding to, a possible hazardous
material transportation incident. TRANSCAER® members consist of
volunteer representatives from the chemical manufacturing,
transportation, distribution, and emergency response industries, as well
as the government.

### 4. Research and Development Efforts to Enhance Tank Car and Hazmat Safety

Railroads participate in a variety of research and development efforts
to enhance tank car and hazmat safety. For example, railroads, tank car
builders, tank car owners, and others jointly fund the Tank Car Safety
Research and Test Project which analyzes accidents involving tank cars
and continually updates a comprehensive database on the nature of damage
to tank cars. Analysis of this data improves safety by improving
researchers' ability to identify the cause of tank car releases and
helps prevent future occurrences. In addition to gathering data and
analyses, research efforts include: efforts aimed at developing better
steels for tank cars, improving tank car design requirements based on
different operating environments, investigating accident forces in an
effort to improve tank car damage resistance, determining the effects of
thermal protection degradation of rail tank cars in service, and
providing data input and validation regarding the effects of fire on
tank cars.

### 5. PHMSA Risk Management Self-Evaluation Framework (RMSEF)

To assist the industry in complying with security plan requirements,
PHMSA developed a security plan template for the RMSEF to illustrate how
risk management methodologies could be used to identify points in the
transportation process where security procedures should be enhanced
within the context of an overall risk management strategy. The RMSEF
assists regulators, shippers, carriers, and emergency response personnel
in examining their operations and considering how they assess and manage
risk. The security template is posted in the docket and on the PHMSA Web
site at [http://hazmat.dot.gov/rmsef.htm.]{.underline} In addition, a
number of industry groups and associations have developed guidance
material to assist their members in developing appropriate security
plans.

### 6. Freight Rail Security Program

Driven in large part by the January 6, 2005, railroad accident and
release of chlorine in Graniteville, SC, federal, state, and local
governments have coordinated efforts to address the complexities of
freight rail security. Through the Freight Rail Security Program,
Federal financial assistance has been provided to the Railroad Research
Foundation to oversee the development and deployment of demonstration
projects that offer the potential for long-term enhancement of freight
rail security. This program is an innovative public-private partnership
dedicated to assessing policies and technologies for enhancing security
throughout the freight rail industry. One product of this partnership is
the planned development of a Rail Corridor Risk Management Tool (RCRMT).
The RCRMT should leverage existing technologies and accepted risk
management practices, where feasible, and incorporate new technologies
and elements, as appropriate. A second project of the Freight Rail
Security Program is the Rail Corridor Hazmat Response and Recovery Tool,
which will integrate geographical information and risk modeling. As part
of this process, rail industry representatives and regional players
whose systems and activities would be impacted by the demonstration
projects will be engaged as partners.

### 7. Security Plan Templates and Guidelines

A number of industry associations have developed guidelines and model
security plans that can be readily adapted to meet a company's
individual circumstances, thereby reducing individual company costs. The
AAR has a template available for its member railroads to use in
developing security plans. Also, on June 5, 2002, the American Chemistry
Council (ACC) made enhanced security activities mandatory for its
members to help assure the public that all member facilities are
involved in making their neighbors, and America, more secure. The ACC
Board approved a new Security Code under Responsible Care7, the
industry\'s initiative for improving performance, which consists of
increased specific commitments to further safeguard chemical operations
from potential terrorist attacks. The Security Code includes measures to
enhance chemical transportation security. Over 200 chemical companies
are ACC members; in addition, nearly 40 industry associations are
Responsible Care7 partner associations.[^5]

## D. General Benefits of Enhancements to Existing Rule

The rail carriers will benefit from clearer expectations, establishment
of performance standards, enhanced planning, and better guidance and
direction.

The public will benefit from the evaluation of safety and security risks
along routes and the associated reduction in the risk of accidents. They
will also benefit from the enhanced security and safety implementations
that result from route evaluations.

Safety benefits of regulatory changes frequently can be estimated with
some degree of precision. Incident and accident history often provides a
basis for estimating fatality, injury, property damage, environmental
damage, and similar costs to society that can be avoided by the
implementation of new requirements. Models can even estimate the costs
to society of high-consequence, low-probability accidents. Benefit
estimates can then be balanced against the estimated costs of new
requirements to determine whether the changes are justified. Estimating
the security benefits of new requirements is much more challenging. The
projected outcome of a terrorist attack cannot be precisely estimated,
but one must assume that choices will be made to maximize consequences
and damage.

It is possible to envision scenarios where hazardous materials in
transportation could be used to inflict fatalities. Though no incident
has occurred in the United States, chemicals such as chlorine have been
used as weapons in other countries. Direct costs and those attributable
to transportation system disruption that would surely result could
easily total in the billions of dollars. We are operating under the
premise that, in today's environment, it is necessary to take reasonable
measures to reduce the likelihood that such events will be successful.
The presence of such measures should help deter potential attacks.

The measures in the interim final rule have the potential to reduce the
likelihood of the success of such an attack. Moreover, the American
public has an expectation that reasonable measures will be taken to help
ensure the security of hazardous materials present in our society so
they are not used for nefarious purposes. Companies are taking or have
already taken steps to develop systematic security plans and security
awareness training. These requirements will help ensure a consistent
approach in the area, while permitting flexibilities that are important
in keeping costs at reasonable levels.

We cannot limit our actions on security to efforts to prevent terrorist
attacks that have already occurred. The events of September 11, 2001,
have demonstrated the fallacy of dismissing the possibility of specific
terrorist scenarios simply because they have not occurred in this
country. It is incumbent on everyone responsible for the safety and
security of the United States to proactively assess future terrorist
threats and take actions to try to prevent future attacks.

Because these changes affect the rail industry, an appropriate
illustration of the costs of a rail hazardous material event is the
accident that occurred in Graniteville, SC, in January of 2005. The
causes of intentional and unintentional releases of hazardous material
are very different; however, in either case, the potential consequences
of such releases are significant and the required responses are likely
to be similar. Indeed, the consequences of an intentional release of
hazardous material by a criminal or terrorist action are likely to be
more severe than the consequences of an unintentional release because an
intentional action is designed to inflict the most damage possible. The
accidental release in Graniteville, SC, is used to illustrate the
consequences of a hazardous material release. As a result of this
accident, 9 people were killed, 250 people were injured, and 5,400
people were evacuated. This accident had a cost of approximately \$126
million.

Unfortunately, there are no benefit-cost models that adapt easily to
rulemaking designed to address threats that are unpredictable and
non-specific. There is no "typical" terrorist scenario. Further, in
attempting to describe the consequences of future terrorist attacks
involving hazardous materials for purposes of this benefit-cost
analysis, we risk compromising transportation security by providing a
possible blueprint for a terrorist to design and carry out a future
attack.

In the end, when security measures are evaluated, an element of judgment
is required to determine whether the costs of the measures are justified
by the benefits that will accrue. The relatively small costs imposed on
individual companies by the security requirements in the interim final
rule are more than offset by the potential benefits if there is a finite
chance that these measures might avert a successful attack. The new
requirements are prudent, common-sense security measures that are in
line with public expectations about the need to take action to protect
hazardous materials shipments from terrorist acts.

# III. STATEMENT OF NEED FOR THE ACTION

As stated earlier in this analysis, hazardous materials are essential to
the economy of the United States and the well-being of its people. The
same characteristics of hazardous materials that cause concern in the
event of an accidental release also make them attractive targets for
terrorism or sabotage.

A primary safety and security concern in the rail transportation of
hazardous materials is the prevention of a catastrophic release in
proximity to such places as densely populated urban areas, events or
venues with large numbers of people in attendance, iconic buildings,
landmarks, or environmentally-significant areas. Such a catastrophic
event could be the result of an accident such as the January 6, 2005,
derailment and release of chlorine in Graniteville, SC, or a deliberate
act of terrorism. Apart from the requirements in 49 CFR § 174.14 to
expedite the movement of hazardous materials, and the requirement in §
172.802 that a rail carrier's security plan address en route security,
the HMR does not include specific routing requirements for rail
hazardous material shipments.

Railroads carry over 1.7 million shipments of hazardous materials
annually. In the wrong hands, hazardous materials can pose a significant
security threat. Hazardous materials in transportation are particularly
vulnerable to sabotage or misuse. The categories of hazardous materials
creating the highest consequences (casualties and physical damage) when
used in attacks are PIH materials, flammable liquids and gases,
explosives, radiological materials, and poisonous materials. Threats
include demolition or sabotage of rail lines, bridges, and tunnels;
attack on a PIH tank car via a direct fire weapons system or explosive
devices; bombing of rail cars/hazmat shipments; hijacking; and attack on
central computer control and communications facilities. Chlorine gas can
cause death by inhalation, but experts say the heat from an explosion
can render the gas nontoxic.[^6] Vulnerabilities include the relatively
open nature of the rail system and the accessibility of temporary
storage sites for railroad tank car quantities of hazardous materials in
or adjacent to railroad yards. Consequences of such an attack could
include significant casualties, in the event that it involves a
high-hazard chemical and occurs in a highly populated area; high cost
for decontamination; and impacts on other modes of transportation.

Because the existing security regulations are not prescriptive, this
action provides clarifications and enhancements. These include current
industry practices and will provide standardization and assistance with
compliance. The rulemaking will implement safety and security
requirements that will reduce the risk of hazardous materials being used
as tools of destruction and terror while enhancing the safe and
uninterrupted transportation of these essential products.

On August 3, 2007, the President signed into law the Implementing
Recommendations of the 9/11 Commission Act of 2007 (Pub. L. 110-53)
(9/11 Commission Act). Section 1551 requires PHMSA to issue a final rule
based on the NPRM, the comments received on the NPRM and the
requirements of Section 1551.

Section 1551 specifies that PHMSA's final rule must require rail
carriers of "security-sensitive materials" to "select the safest and
most secure route to be used in transporting" those materials, based on
the rail carrier's analysis of the safety and security risks on primary
and alternate transportation routes over which the carrier has authority
to operate. Specifically, the rule must require such rail carriers to
perform the following tasks each calendar year:

\(1\) Collect and compile security-sensitive commodity data, by route,
line segment, or series of line segments, as aggregated by the rail
carrier and identify the geographic location of the route and the total
number of shipments by UN identification number;

\(2\) Identify practicable alternative routes over which the carrier has
authority to operate as compared to the current route for such
shipments;

\(3\) Seek relevant information from state, local, and tribal officials,
as appropriate, regarding security risks to high-consequence targets
along or in proximity to a route used by a rail carrier to transport
security-sensitive materials;

\(4\) Consider the use of interchange agreements with other rail
carriers when determining practicable alternative routes and the
potential economic effects of using an alternative route;

\(5\) Analyze for both the primary route and each practicable
alternative route the safety and security risks for the route, railroad
facilities, railroad storage facilities, and high-consequence targets
along or in proximity to the route; these analyses must be in writing
and performed for each calendar year;

\(6\) Compare the safety and security risks on the primary and
alternative routes, including the risk of a catastrophic release from a
shipment traveling along these routes, and identify any safety and
security remediation or mitigation measures implemented on the primary
and alternative transportation routes; and

\(7\) Using the analysis described above, select the practicable route
posing the least overall safety and security risk.

The rule must also require that a covered rail carrier, at least once
every three years, analyze its route selection determinations, including
a comprehensive, system-wide review of all operational changes;
infrastructure modifications; traffic adjustments; countermeasures;
changes in the nature of high-consequence targets and emergency response
capabilities along, or in proximity to, the route; and any other changes
affecting the safety and security of the movements of security-sensitive
materials that were implemented since the previous analysis was
completed. Finally, the rule is to require that covered rail carriers
retain, in writing, all route review and selection decision
documentation and restrict the distribution, disclosure, and
availability of this information to appropriate persons.

The 9/11 Commission Act defines "security-sensitive material" to mean
the material or classes of materials that the Secretary of the
Department of Homeland Security (DHS), in consultation with the
Secretary of DOT, determines through a rulemaking proceeding with
opportunity for public comment pose a significant risk to national
security while being transported in commerce.[^7] The Act defines
"high-consequence target" to mean "a property, natural resource,
location, area, or other target designated by the Secretary \[of DHS\]
that is a viable terrorist target of national significance, which may
include a facility or specific critical infrastructure, the attack of
which by railroad could result in (A) catastrophic loss of life; (B)
significant damage to national security or defense capabilities; or (C)
national economic harm."

## A. Alternative Regulatory Approaches 

### 1. Different Compliance Dates 

The enhancements to the security rule are designed to build on the
current requirements of the HMR and mirror some existing industry
practices. While it may be more difficult for the small rail carriers to
compile the required data, the volume of data they will be collecting is
significantly smaller than for the large railroads, which transport much
greater volumes of the specified hazardous materials on a daily basis.
Similarly, the requirements for route analyses and notification of
delays in transit will reflect a lower number of potential routes and
consignees for the smaller railroads compared to the large railroads.
Therefore, compliance within 6 months of publication of the interim
final rule is reasonable for both large and small rail entities.

A shorter compliance time frame would potentially decrease the
effectiveness of the interim final rule primarily because it might not
allow sufficient time for the railroads to collect the data and complete
thorough analyses, resulting in potentially ineffective route
selections. Extending the compliance date beyond 6 months further delays
these important safety and security enhancements without an expected
increase in the quality of the route decision or corresponding decrease
in cost to the regulated entities. Simply allowing more time to complete
the data collection and route selection does not reduce the anticipated
level of effort required to complete the tasks.

### 2. Different Enforcement Methods 

Onsite inspections are the most economically-efficient method of
enforcement for this regulation. The review and approval of hundreds of
security plans and analyses by DOT personnel on an annual basis would be
extremely resource-intensive and time-consuming. Enforcement of this
rule will be conducted in the same manner of enforcement of other HMR
requirements. During the course of their regular inspections, DOT
inspectors will review security plans, route analyses, and route
selections for compliance with the regulations. As with other
regulations, inspectors have the discretion to issue notices of
noncompliance, or to recommend civil penalties for probable violation of
the regulations.

### 3. Different Requirements for Different Sized Firms

This analysis provides cost estimates based on the size of the railroad.
Smaller railroads typically transport hazardous materials significantly
less frequently. Therefore, the cost to smaller railroads is
significantly less than the cost to large railroads. As identified, the
large railroads include Class I and Class II, the smaller railroads are
designated Class III. On a per entity basis, the total 20-year costs of
the rule are as follows:

  ----------------------------- -------------------- ---------------------
                                Number of railroads  Total 20-year costs
                                in class:            by group (PV, 7%)

  Large Railroads (Class I and  39                   \$ 12,579,034
  II)                                                

  Small Railroads (Class III)   100                  \$ 4,833,034
  ----------------------------- -------------------- ---------------------

### 4. Different Requirements for Different Geographic Regions

The regulation of railroads based on geographic location is not possible
because railroads operate over large distances throughout the country
and frequently operate in many different regions. Railroads operate
through large and small population centers in the country. Benefits will
not be evenly distributed throughout the country because the population
is not evenly distributed. Locations of industrial hazardous material
manufacturing are also spread throughout the country. There are also
varying densities of hazardous materials at various locations throughout
the country. For example, the City of Houston, TX, is a major rail hub
located in an area that is a significant producer of hazardous
materials. The number of railcars containing hazmat at any given time in
Houston or similar areas may be far greater than the number of cars
containing hazmat in another geographic area.

### 5. Performance Standards Rather than Design Standards

The standard in this regulation is a performance standard. This
performance standard allows for flexibility in achieving this regulatory
objective. Regulated parties are afforded cost savings through this
flexibility.

### 6. Market-Oriented Approaches Rather than Direct Controls 

Currently, the risk associated with transporting security-sensitive
materials far outweighs the revenue that railroads receive. The most
economically prudent course for the railroads might be to stop
transporting these hazardous materials if it were not for regulation and
controls. Railroads are required under their statutory common carrier
obligation to transport hazardous materials upon "reasonable request"
and when the hazardous materials are tendered in conformity with
applicable DOT regulations. See 49 U.S.C. § 11101(a); Classification
Rates on Chemicals, Conrail, 3 ICC 2d 331 (1986); Akron, Canton &
Youngstown R. Co. v. I. C. C., 611 F.2d 1162 (6th Cir. 1979), cert.
denied 101 S.Ct. 97, 449 U.S. 830, 66 L.Ed.2d 34. In other words,
because of this statutory obligation, railroads cannot simply refuse to
carry hazardous materials. They are obligated to carry these materials
and bear the liabilities of transporting them safely.

### 7. Informational Measures Rather than Regulation 

Standards and regulations are essential to ensuring that all carriers
work to improve the safety and security of transporting hazardous
materials. An alternative might be a guidance document published in the
Federal Register, which would be instructive to the carriers, but would
fail to ensure an improvement in safety or security. The scheme is
flexible, allowing each rail carrier to tailor the plan to its own
individual needs. Informational measures may also be used in addition to
the rule. Such informational measures include tools to assist carriers
in developing plans and guidance documents detailing best practices
throughout the industry.

# IV. AN EXAMINATION OF ALTERNATIVE APPROACHES

## A. Evaluation of Alternative Regulatory Approaches

Analyzing all possible combinations of provisions is impractical. The
regulatory alternatives considered included three different levels of
stringency: the preferred option, a more stringent option, and a less
stringent option.

### 1. The Preferred Option

The preferred option is to address only certain highly hazardous
materials (security-sensitive materials) transported by rail carriers.
Requiring the rail carriers to develop a plan and take action on that
plan will result in the use of a safer and more secure route for the
materials presenting the greatest risk to the public.

### 2. More Stringent Option

The more stringent option would apply the requirements to all hazardous
materials and to all rail carrier entities that the original regulation
addressed. This option could affect all 549 railroads. If all nine
classes of hazardous materials were included, versus the three classes
that are addressed in the preferred option, this could triple the burden
and cost of the regulation.

### 3. Less Stringent Option

The less stringent option would apply to the transportation of PIH
materials only. This option would only minimally reduce the cost of the
regulation. There would potentially be a 10-15 percent cost reduction in
the cost of data collection. But due to the volume of PIH material
transported compared to the volume of explosives and radioactive
material, the number of route analyses that would have to be done may
not change. Likewise, the amount of effort estimated for updating the
safety and security plan and delay in transit notifications would remain
the same or, at most, be reduced by 10 percent.

## B. Status Quo (Do Nothing) 

The baseline continues the status quo. This is a "no action" baseline
and the benefits and costs are compared with this alternative. If the
interim final rule is not adopted, rail carriers are not required to
produce or retain commodity data. Specific identified criteria for the
route and alternate route analyses may not be uniformly considered by
all rail carriers, and written analyses of primary and alternate routes
including safety and security risks are not required. As identified in
the benefits section, the costs to society, the government, and the rail
industry of an accidental security-sensitive material incident are high.
It can only be assumed that a terrorist act would be planned to impose
the maximum damage and loss of life possible. Implementation of the rule
should decrease the possibility of either accidental or intentional
releases of these materials.

The current rule works with rail carriers' needs and operating
environments to produce a regulatory scheme that is economically
efficient, and effective in reducing safety and security risks related
to the transportation of hazardous materials.

According to the railroads, the risk of carrying security-sensitive
materials outweighs the benefits they receive in revenue for
transporting these materials. As identified previously, railroads are
required under their statutory common carrier obligation to transport
hazardous materials upon "reasonable request" and when the hazardous
materials are tendered in conformity with applicable DOT regulations. In
other words, because of this statutory obligation, railroads can't
simply refuse to carry hazardous materials. They are obligated to carry
these materials, and bear the liabilities of transporting them safely.
The railroad industry's ability to move large volumes of material
quickly makes it essential to both national defense and economic
security. Railroads move 42 percent of our nation's freight (measured in
ton-miles) and connect businesses with each other across the country and
with markets overseas. The greatest security vulnerabilities in the rail
sector include not only the potential for attacks on railroad passengers
on trains or in stations, but also the release of hazardous materials
from rail cars in proximity to large concentrations of people.

# V. EVALUATION OF THE BENEFITS AND COSTS

## A. General Principles

The action is expected to enhance rail transportation safety and
security. Rail carriers will analyze primary and any available
practicable alternate routes, taking into consideration a uniform
listing of criteria. Carriers will be required to use the safest and
most secure route, thereby reducing the risk of both accidental and
intentional releases. Railroads will also be required to address delays
in transit, further reducing safety and security risks.

### 1. Scope of Analysis 

This analysis focuses on benefits and costs accruing to citizens and
residents of the United States. The time frame of this analysis is 20
years, a sufficient time frame to encompass all the important benefits
and costs likely to result from this interim final rule.

The existing security plan rule does affect Mexican and Canadian rail
carriers. The clarifications of these security regulations will affect
the same rail carriers already required to comply with all existing
hazardous materials regulations because they operate within the United
States. The costs associated with the interim final rule are based on
hazardous material shipments within the United States and associated
carriers. Carriers in this analysis include railroads that are located
outside of the United States, but operate within U.S. borders. No
additional carriers are affected by this regulation.

### 2. Assumptions 

The time horizon for the analysis is 20 years. Because costs and
benefits accrue in different years, discount rates are applied to future
benefits and costs. Two discount rates are used, 3 percent and 7
percent. The discount rate of 7 percent more accurately represents the
before-tax rate of return to private capital in the U.S. economy, and is
emphasized in this analysis.

### 3. Baseline 

The best assessment of the way the world would look absent the interim
final rule will resemble the present. The baseline assumes no change in
the regulatory program. Although railroads work toward safety and
security improvements, the risk may be addressed more slowly and less
consistently, absent this regulation.

### 4. Discounting 

The benefits and costs of the rule occur in different time periods;
therefore, discounting is used to account for the fact that resources
available in a given year are worth more than the identical resources in
a later year. The discount rates currently used are 3 percent and 7
percent, in real terms. The discount rate of 7 percent is emphasized
because it is an estimate of the average before-tax rate of return to
private capital in the U.S. economy. It is a broad measure that reflects
the returns to real estate and small business capital as well as
corporate capital. It approximates the opportunity cost of capital, and
it is the appropriate discount rate whenever the main effect of a
regulation is to displace or alter the use of capital in the private
sector.

  ------------------- ---------------------------------------------------
  Costs of Regulation 
  by Year             

  Year                Costs

  1[^8]               \$ 4,802,296.31

  2                   \$ 831,971.91

  3                   \$ 831,971.91

  4                   \$ 2,503,408.95

  5                   \$ 831,971.91

  6                   \$ 831,971.91

  7                   \$ 2,503,408.95

  8                   \$ 831,971.91

  9                   \$ 831,971.91

  10                  \$ 2,503,408.95

  11                  \$ 831,971.91

  12                  \$ 831,971.91

  13                  \$ 2,503,408.95

  14                  \$ 831,971.91

  15                  \$ 831,971.91

  16                  \$ 2,503,408.95

  17                  \$ 831,971.91

  18                  \$ 831,971.91

  19                  \$ 2,503,408.95

  20                  \$ 831,971.91

  Totals:             \$30,638,384.84

  PV 3%               \$23,453,061.41

  PV 7%               \$17,412,124.73
  ------------------- ---------------------------------------------------

## B. Benefit Estimates 

The primary source of safety benefits from enhancements to the current
PHMSA security requirements would result from the avoidance of a portion
of the fatalities, injuries, and property damage that result from
hazardous material accidents. Hazardous material accidents often result
in fatal or very serious injuries, evacuations, railroad equipment
damage, and environmental damage.

The safety and security benefits of the rule are measured in terms of
the reduction in the risk of a hazmat release. The number of potential
releases is a function of exposure. Clearly, the greater the traffic
volume, the greater the likelihood of exposure and, in turn, the greater
the number of potential releases. Because there is no reason to believe
traffic growth rates will significantly change, it is assumed they will
remain constant. In the interest of being conservative, it is assumed
the ratio of accidents to exposure will remain constant in the absence
of change.

[Description of benefits and costs that cannot be
quantified:]{.underline}

One benefit that cannot be quantified is the flexibility provided in the
enhancements to the current regulation by requiring a performance
standard. Flexibility can be extremely beneficial to the regulated
community. Beneficiaries of reduced risk will primarily be persons other
then railroads. If 1 accident is avoided, that will result in a
reduction to the drain on local resources that accidents cause.
Emergency response personnel and equipment will not bear the expense
associated with that accident. This benefit may be high in the case of a
large release, or quite modest if there is no release.

The hazardous material commodities addressed in the regulation are
primarily transported by Class I and Class II (large) carriers.
Approximately 99 percent of the ton mileage occurs on Class I carriers.
As indicated in this analysis, the bulk of the cost of this rule is
borne by the Class I and Class II carriers.  The 100 small railroads,
local and shortlines, typically operate in small urban or rural areas,
providing service to a limited number of facilities.  These small
railroads generally handle a limited number of shipments and commodities
at a time and have close working relationships with the shipper/receiver
facilities within their territory.  We believe the security measures
required by this rule will be fairly simple for these small railroads. 
The cost of implementing risk mitigation along their identified routes
should be negligible.

DHS, through the Urban Area Security Initiative (UASI) grant
program,[^9] has identified 46 High Threat Urban Areas (HTUA) and, of
these, 45 are served by rail.  Based on reviews performed by TSA, one of
these HTUAs was selected to serve as a demonstration project for several
cutting-edge technology-driven products to reduce or mitigate the risk
of a terrorist attack along the rail corridor within the HTUA.  This
high-tech "hardening" of the rail corridor is being funded primarily
through Federal Government grants and is anticipated to cost
approximately \$11 million.  The specific length of track to be
protected and existing security infrastructure components vary widely
between HTUAs; therefore, the cost for hardening could be higher or
lower.  In addition, as these technologies gain widespread use, the cost
of individual components should reduce over time.  Given these
uncertainties, we are estimating an average cost of \$11 million that
would be spent per HTUA to mitigate identified rail security
vulnerabilities.  Total Cost:  45 areas x \$11 million = \$495 million.

Alternately, there are many "low-tech" approaches that have been used by
the railroads to mitigate known safety and security risks.  These
measures include electrified fencing and lighting, enhanced inspection
procedures, assignment detailing of railroad police, and employee
security awareness training, to name a few.  Many of these measures are
accomplished using existing railroad resources; however, there are
associated costs to the railroad.  If a railroad were to rely solely on
these low-tech types of measures, we estimate an average cost of only
\$1 million per HTUA for mitigation of security vulnerabilities.  Total
Cost:  45 x \$1 million = \$45 million. Therefore, the range of
mitigation expenses varies from a low of \$45 million to a high of \$495
million dollars for risk mitigation in the HTUAs.

Identifying and mitigating security vulnerabilities within the HTUAs are
currently being done by the railroads.  We believe that readily
available low-tech measures are being quickly implemented.  The
development, procurement, and widespread installation of the more
technology-driven alternatives could take several years.  PHMSA's
previous security rule requires the railroads to have a security plan
that includes en route security.  This existing regulatory requirement,
coupled with the industry's generally risk-averse nature, is driving the
railroads to enhance their security posture.  Therefore, we expect the
cost of mitigation that could be attributed solely to this rule to be
less than 1 percent of the overall costs described above.

Safety and security measures are intertwined and often work
concurrently. For example, lighting not only improves security, but also
improves safety for railroad employees. The industry has spent millions
of dollars to improve the safety and security of the railroads. More
than \$200 million dollars was spent by the industry, as of four years
ago. In the last three years, additional expenses have been incurred by
security assessments, planning, mitigation measures, exercises,
Transportation Security Administration responses, vulnerability tests,
etc. These costs easily reach into the hundreds of millions of dollars.
Because safety and security work together to complement each other,
separating security costs from safety costs is not feasible. For
example, daily safety and security briefings take an average of 15
minutes per day for each of the over 20,000 railroad employees. The
amount of time allocated to the briefing for safety, versus security, is
unknown and could vary on a daily basis.

For the reasons stated in the regulatory preamble, we believe that
reroutings as a result of this rule will be infrequent and so have not
attempted to estimate the additional cost incurred by them.

### 1. Effectiveness 

#### a. The Effectiveness Metric for Public Health and Safety Rulemakings

The public safety effectiveness metrics used include the number of lives
saved and the rule's impact on morbidity (nonfatal illness, injury,
impairment, and quality of life) as well as premature death. Some
illnesses may cause more pain and suffering than premature death.

#### b. Number of Lives Saved (Fatality Risks)

Measurements of willingness to pay for reductions in the risk of
premature death are used in the calculation of the value for the
projected reduction in the risk of premature mortality. DOT currently
uses the amount of \$3 million to represent the valuation of one
fatality risk reduction. This amount has no application to an
identifiable individual or to very large reductions in individual risks.
This does not suggest that any individual's life can be expressed in
monetary terms. The sole purpose is to help better describe the likely
benefits of this regulatory action.

#### c. Potential Injuries Averted (Nonfatal Health and Safety Risks), Impact on Morbidity

A traumatic injury that can be treated effectively in the emergency room
without hospitalization or long-term care is different from a traumatic
injury resulting in paraplegia. Severity and duration of an impaired
health state is necessary before the task of monetization can be
performed. Data on the severity of injuries resulting from hazardous
material release accidents suggests these injuries are typically quite
severe. DOT estimates the "willingness to pay" to avert a fatality to be
\$3 million. The "willingness to pay" estimate is based on the amount
individuals are willing to pay to avoid a fatality. This value
incorporates all aspects of well being, including foregone labor and
non-labor income, leisure time, and pain and suffering of relatives and
friends. The value of an injury is calculated using the Abbreviated
Injury Scale (AIS) developed by the Association for the Advancement of
Automotive Medicine. The AIS categorizes injuries into the six levels of
severity presented below. The AIS also assigns values to these
categories based on the "willingness to pay" approach discussed above.

**Fraction of**

**[AIS Level]{.underline} [Value]{.underline} [Value of
Life]{.underline} [Example of Injury]{.underline}**

AIS 1 - Minor \$6,000 0.0020 Superficial abrasion or laceration of skin;
digit sprain; first-degree burn; head trauma with headache or dizziness
(no other neurological signs).

An AIS 1 injury is simple, and may not require professional medical
treatment. Recovery is usually rapid and complete.

AIS 2 - Moderate \$46,500 0.0155 Major abrasion or laceration of skin;
cerebral concussion (unconscious less than 15 min.); finger or toe
crush/amputation; closed pelvic fracture with or without dislocation.

An AIS 2 injury almost always requires treatment, but is not ordinarily
life-threatening or permanently disabling.

AIS 3 - Serious \$172,500 0.0575 Major nerve laceration; multiple rib
fracture (without a flail chest); abdominal organ contusion; hand, foot,
or arm crush/ amputation.

An AIS 3 injury has the potential for major hospitalization and
long-term disability, but is not generally life-threatening.

AIS 4 - Severe \$562,500 0.1875 Spleen ruptures, leg crushes, chest wall
perforations, and cerebral concussions with other neurological signs
(unconscious less than 24 hrs.).

An AIS 4 injury is often permanently disabling, but survival is
probable.

AIS 5 - Critical \$2,287,500 0.7625 Spinal cord injury, extensive/deep
laceration of kidney or liver, extensive second or third degree burns,
cerebral concussions with severe neurological signs.

An AIS 5 injury usually requires intensive medical care. Survival is
uncertain.

AIS 6 - Fatal \$3,000,000 1.0000 One that will probably eventually lead
to death. Massive destruction of the cranium, skull, and brain.

### 2. Distributional Effects 

The rail carriers will bear the immediate costs of this rule
clarification and enhancement. As mentioned, we expect reroutings as a
result of this rule to be infrequent. The additional cost of such
reroutings will be borne by carriers and shippers. The primary benefit
of reduced risk accrues to the general public. These benefits are
substantial when considering the totality of risk and not just the cost
of an event.

## C. Methods of Estimating Benefits 

Safety benefits are addressed using a recent accidental railroad
hazardous material release. The release discussed here occurred in
Graniteville, SC, on January 6, 2005.

To address the benefits, the cost of this accident will be estimated
based on standard DOT estimates for the value of a statistical life set
at \$3 million. The AIS scale will be used in conjunction with the
statistical value of life to determine the value of injuries. The cost
associated with the evacuation of people will be estimated using \$200
per day per evacuee. This number is multiplied by the number of days the
evacuation lasted and the number of people that were evacuated, to
determine the value. The result is the benefit value of avoiding a
similar evacuation.

Benefits of avoiding some hazardous material release accidents also
accrue to railroads. These benefits include the reduction in property
damages (locomotives, cars, and track), which are normally paid by the
railroad. Additional benefits to railroads include the elimination of
track out of service expenses. These out-of-service expenses include
train delays and rerouting costs associated with the track being
out-of-service. If the accident occurs on a single main track, it is
more costly than if the area is double tracked. Where the area has more
than one track, traffic can be more easily diverted around the affected
track.

### 

### 1. Historical Accident Data 

Graniteville, SC, January 6, 2005, 2:30 am EST

The Graniteville crash killed 9 people and injured more than 550 people.
It was the deadliest train wreck involving hazardous material in nearly
three decades. At 2:39 a.m. EST, a train crashed into a locomotive and
two cars on a siding in Graniteville, SC. A tanker containing chlorine
was punctured and released chlorine. The release occurred in commercial
and residential areas of Graniteville, SC, and approximately 5,400
residents were evacuated from a 1-mile radius around the accident site.
About 554 people complaining of respiratory difficulties were taken to
local hospitals. Of these, 75 were admitted for treatment. Nine people
died from exposure to chlorine gas.[^10] Fifteen people were placed on
ventilators in intensive care units. Twenty-five people were
hospitalized for more than 3 days. Twenty-six people were hospitalized
for 1-2 days. There were 68 repeat visits to the emergency department,
58 people with significant symptoms, and 98 with moderate symptoms.
Forty-one people who visited the emergency department were released, and
13 people were treated at a physician's office[^11].

To assist in determining the appropriate AIS level to use, the injuries
sustained in the accident defined previously will be used. One criterion
for a reportable injury is that the injury requires medical treatment.
Because one criterion of an AIS 2 injury is that it almost always
requires treatment, it can be assumed that all injuries reported are at
least AIS 2. Of the 554 people taken to the hospital, it was reported
that 75 were admitted for treatment. It was further reported that 9
died, 15 people were placed on ventilators, 25 people were hospitalized
for more than 3 days, and 26 people were hospitalized for 1-2 days. In
the interest of being conservative, and without more specific
information, an "AIS 2 , moderate" will be assessed for 479 persons, and
the remaining 75 persons admitted will be assessed as "AIS 3, severe."

Authorities evacuated homes and businesses within a mile of the crash,
affecting about 5,400 people. Some were out of their homes for more than
a week. On January 14, 2005, approximately 1,500 Graniteville residents
returned to their homes. By January 17, 2005, an estimated 4,500 people
returned home. On January 19, 2005, residents remained displaced from an
estimated 75 homes in the immediate area of the derailment.

The railroad projects the disaster will cost \$35 million[^12].

### 2. Benefit Summary 

#### a. Fatalities {#a.-fatalities .unnumbered}

Nine people died as a result of the chlorine release. Each fatality is
valued at an estimated \$3 million, for a total of **\$27 million**.

#### b. Injuries {#b.-injuries .unnumbered}

The total injuries of 554 were divided into two different AIS levels in
order to estimate the value of the injuries.

  --------------- -------------- ---------------- ------------------------
  Value of                                        
  Injuries                                        

  Number of       AIS Level      Value of AIS     Value \* Number of
  Injuries                       Level            Injuries

  479             AIS 2 -        \$46,500         \$22,273,500
                  Moderate                        

  75              AIS 3 - Severe \$172,500        \$12,937,500

  Total: 554                                      Total: **\$35,211,000**
  --------------- -------------- ---------------- ------------------------

#### c. Evacuees {#c.-evacuees .unnumbered}

The cost of evacuation, providing alternate food and shelter for each
evacuee, is estimated at \$200 per day.

  ---------------- -------------- ---------------------------------------
  Evacuees                        

  Number of people Number of Days Value of Evacuation

  3900             9              \$7,020,000.00

  300              10             \$600,000.00

  300              11             \$660,000.00

  750              12             \$1,800,000.00

  150              13             \$390,000.00

  Total: 5400                     Total: \$10,470,000.00
  ---------------- -------------- ---------------------------------------

####  {#section-1 .unnumbered}

#### d. Property damage {#d.-property-damage .unnumbered}

Total damages exceeded **\$6.9 million** according to the National
Transportation Safety Board (NTSB).[^13]

#### e. Environmental cleanup {#e.-environmental-cleanup .unnumbered}

The environmental cleanup portion of the benefit assessment covers the
determination of environmental cleanup costs. The FRA Accident/Data
Analysis and Benefit Assessment Task Force reviewed Accidents from 1995,
1996, and 1997. This Task Force reviewed accidents, which were assessed,
and a data set was established. Then the accidents were assessed as to
the potential benefit the improved features would provide in the same
scenario. Each accident was assessed as "maximum" potential benefit,
"medium" potential benefit, "minimum" potential benefit or "no"
potential benefit. The final data set included 286 accidents, 46 of
which involved fuel tank breaches. In addition, 22 other accidents,
which were not included in the data set, involved fuel tank breaches. Of
the accidents for which data was provided or noted, an average of 1.5
locomotives per accident (for the 68 accidents with breached fuel tanks)
involved fuel tank spills, and the average number of gallons spilled was
1,836. Based on environmental cleanup costs, which were found in the
review of some accidents that involved fuel spills, FRA found that the
average clean-up cost of a fuel spill was \$129,260. This amount,
adjusted to 2004 dollars,[^14] is equal to **\$152,132**.

There are also environmental cleanup costs associated with a stream in
the accident area. Furthermore, there are environmental cleanup costs
associated with cleaning up certain hazardous material spills; however
these costs may be included in the property damage costs, and therefore
these are not being estimated separately here.

#### f. Track delay, rerouting, and associated out-of-service expenses {#f.-track-delay-rerouting-and-associated-out-of-service-expenses .unnumbered}

The Graniteville accident occurred January 6, 2005, at approximately
2:40 a.m. and service resumed January 29, 2005, at approximately 4:00
p.m. The single main track was out of service for more than 23 days. The
costs associated with a single main track out of service are extremely
high. All traffic must be rerouted over other track. If the company does
not have trackage rights over alternate track, the distances could be
large. Larger distances have higher associated costs. If trackage rights
do exist, the company has to pay the equivalent of a toll to use track
it does not own. Alternate track may not be available at any price.
Track utilization in the United States is extremely high; it is
estimated at over 90 percent. When traffic is rerouted, it slows down
other traffic, and has far-reaching effects on the system. Based on past
experience, we estimate that blocking a single main-line for 1 hour
costs approximately \$1 million. Obviously, this amount depends on
numerous factors. In Graniteville the track was out of service for more
than 23 days, or 565 hours. At approximately \$1 million per hour, 565
hours equates to \$565 million. Because all associated costs and
rerouting decisions and effects are not known, a conservative estimate
of \$2 million per day will be used to estimate the value of
out-of-service time for the track. Therefore, the total estimate value
for track out of service time is **\$46 million**.

*g. Incident summary*

The major benefits resulting from this interim final rule relate to
enhanced safety and security of rail shipments of hazardous materials.
We expect this interim final rule to reduce fatalities, injuries, and
property and environmental damage resulting from rail accidents
involving hazardous materials. Safety benefits were calculated in terms
of the decline in the risk of certain accidents and their consequences,
We based our analysis on the chlorine accident occurring in
Graniteville, SC, in January of 2005. The following table summarizes the
number of deaths, injuries, evacuations, property damages, environmental
cleanup of diesel fuel only, and track out of service values for this
accident:

  ----------------------- ----------------------- --------------------------
  Rail Hazardous Material                         
  Incident Summary                                

  [Damage:]{.underline}                           [Valuation:]{.underline}

  Fatalities:             9                       \$27,000,000

  Injuries:               554                     \$35,211,000

  Evacuation:             5,400                   \$10,470,000

  Property Damage:                                \$6,900,000

  Environmental Cleanup:  (Diesel fuel only)      \$152,132

  Track Out of Service:   23 days                 \$46,000,000

  **Total Value:**                                **\$125,733,132**
  ----------------------- ----------------------- --------------------------

## D. Cost Estimates 

### 1. Cost Estimate of Enhancements to Existing Security Plan Regulation 

PHMSA has estimated the cost of compliance with the interim final rule
based on the size of the company. In this analysis, Class I and regional
railroads (Class II) are considered "large railroads" and Class III
railroads are considered "small railroads." There are 7 Class I
railroads, 32 regional railroads, and 510 small railroads.[^15] All
Class I and regional railroads will probably be affected by this interim
final rule, but not all local railroads carry hazardous materials. It is
estimated that approximately 100 small railroads carry hazardous
materials. The majority of small railroads do not carry hazardous
materials on a daily basis; in fact, some small railroads carry
hazardous materials fewer than five times annually.

> **Rail Carriers Subject to Rule**

  -----------------------------------------------------------------------
  **Number of Affected Rail Carriers by Size**

  39 large railroads

  100 small railroads

  139 total
  -----------------------------------------------------------------------

The labor rate used to estimate costs is \$60.83. This labor rate is a
combination of two employee groups listed in "Railroad Facts 2004
Edition," published by the AAR. The two employee groups used were,
"Executives, officials & staff assistants" and "Professional &
administrative." A combination of these two groups will probably be
utilized to perform the requirements in this interim final rule. The
average annual wages for these groups are \$94,916 and \$57,166,
respectively. The resulting average hourly wage rate with a 60 percent
overhead added is \$60.83.[^16] This labor rate is used to calculate the
costs of this interim final rule.

For each cost element of the interim final rule, minimum, maximum, and
likeliest estimates were analyzed. In the interest of being
conservative, the maximum estimates for each cost element were used in
determining the total cost of this interim final rule. Likeliest and
minimum estimates are presented for transparency and clarity.

#### a. Annual Data Collection by Line Segment

As previously noted, the interim final rule requires a rail carrier
transporting security-sensitive materials to use the data it compiles to
annually analyze the safety and security risks for the transportation
route(s) used to transport a security-sensitive material. In performing
this analysis the rail carrier must consult with state, local, and
tribal officials, as appropriate, regarding security risks to
high-consequence targets, countermeasures already in place, and the
community emergency response capability along, or in proximity to, the
route(s) utilized. In the months after September 11, 2001, the Class I
carriers established security plans and protocols through their trade
association, and the smaller carriers followed suit and adopted the same
or similar procedures shortly thereafter. These security plans and
protocols have included information exchanges with state, local and
tribal governments regarding risks and emergency response, and
established lines of communication are already in place. With respect to
high-consequence targets, DHS has previously designated various places
and things that are considered to be attractive terrorist targets and
security risks. These designations have included geographic areas,
particular iconic targets, particular events, and critical
infrastructure. These DHS lists of targets that would fall within the
statutory definition of "high consequence target" are comprehensive,
utilized by governments and industries for risk management, and are
unlikely to undergo dramatic change. Rail carriers also have
considerable past experience in altering their operations and routes to
accommodate security needs for such things as national political party
conventions, national sporting events, and Presidential inaugurations,
which involve close cooperation with state and local officials.

Hazmat shipment data is readily available to large railroads. Because
small railroads do not frequently carry the hazardous materials
addressed in this interim final rule, they may know exactly what
commodities they carry and when. Many small railroads will know, for
instance, that they carry one tank car of chlorine from an interchange
point for 2 miles to a water treatment facility once a week. Small
railroads that carry hazmat less frequently may not have electronic data
and may have to physically search their records for this information.
Therefore, for small railroads, more hours are estimated to collect this
data. Larger railroads will most likely spend 8 hours, with a minimum
estimate of 5 hours. Small railroads may spend a minimum of 25 hours
collecting this data, with a most likely estimate of 30 hours. The
maximum estimate of 40 hours for large railroads and 40 hours for small
railroads is used for conservative estimating of the cost. In this
analysis, this cost is incurred every year for 20 years.

  ------------- ----------- ----------- --------- --------- ------------------
  Annual Data                                               
  Collection by                                             
  Line Segment                                              

  Railroad size Number of   Likeliest   Minimum   Maximum   Max. number of
                railroads   number of   number of number of hours \* hourly
                in class    hours       hours     hours     labor rate

  Class I       7           8           5         40        \$17,032.40

  Class II      32          8           5         40        \$77,862.40

  Class III     100         30          25        40        \$243,320.00

  Total:                                                    \$**338,214.80**
  ------------- ----------- ----------- --------- --------- ------------------

#### b. Primary Safety and Security Route Analyses (Year 1)

The primary route analyses conducted in year 1 will cost more than the
analyses done in subsequent years. It is anticipated that the majority
of the routes analyzed in year 1 will continue to be used in future
years. Therefore, these routes will require only review to ensure there
have been no changes that would impact the analyses in the future years.
Additionally, a learning curve is anticipated, and for these reasons,
future years will require less time. An important determinate of costs
is the number of routes that must be analyzed. An example of a route is
a major corridor. Larger railroads carry hazmat farther distances than
small railroads. Therefore, the large railroads are estimated to have
more routes per carrier than the small railroads. It is also anticipated
that the larger railroads will have more complex route analyses to
perform. Many small railroads do not need to perform sophisticated
analyses in order to comply with the rule. In general, it was assumed
that the small railroads, due to their limited size, would, on average,
have no less than one and no more than two primary routes to analyze; so
for 100 small railroads, there is a maximum of 200 primary routes to be
analyzed. Because the distance covered by the small railroads' routes is
likely contained within a limited geographic region, the hours estimated
for analyses are fewer than those estimated for the larger railroads.

Minimum, maximum, and most likely estimates are provided for the number
of routes by railroad class and the hours per route. The maximum number
of routes and hours were used to estimate this cost element. It is
assumed that the railroads will consider each major corridor as a single
route to minimize the number of routes analyzed. The rule does not
mandate how the railroads identify each route, but it is reasonable to
assume that railroads will use economic best practices. The initial
analysis and route selection must include a comprehensive review of a
carrier's entire system and include mitigation measures that the carrier
intends to implement to increase the safety and security of the
route(s). Class I and II railroads are more likely to have alternate
routes; Class III railroads operate over less track mileage. The Class I
and II carriers analyze all alternate routes to determine, given the
operation knowledge of the carrier, the route of a particular shipment
on a particular day. All Class I railroads are estimated to have a
minimum of 40 routes, a most likely of 42 routes, and a maximum of 60
routes. The Class II railroads are estimated to have a minimum of 64
routes, a most likely of 96 routes, and a maximum of 128 routes. As
identified above, Class III railroads are estimated to have a minimum of
100 routes, a most likely of 100 routes, and a maximum of 200 routes.
These numbers are high and are not intended to suggest that this number
of major corridors exist. The numbers are representative of all possible
routes for the commodities included in this interim final rule. These
numbers represent existing track infrastructure and are overstated to
account for further unexpected route changes and potential acquisitions
that may or may not occur. Similar estimates were made for hours per
route to perform the analyses. Class I and Class II railroads are
estimated to require a minimum of 8 hours per route, a most likely of 40
hours per route, and maximum of 80 hours per route. A Class III railroad
is estimated to require a minimum of 8 hours per route, a most likely of
32 hours per route and a maximum of 40 hours per route.

The maximum number of routes to be analyzed for each Class of railroad
is multiplied by the maximum number of hours the primary route analyses
are anticipated to take, times the hourly labor rate (\$60.83).

  ---------- ----------- ---------- -------------- ------- --------------------
  Primary                                                  
  Route                                                    
  Analyses                                                 
  -- Year 1                                                

  Railroad   Number of   Maximum    Maximum number Labor   Max. number of
  size       railroads   number of  of hours per   Rate    routes \* max. hours
             in class    routes     route                  \* hourly labor rate

  Class I    7           60         80             60.83   \$291,984.00

  Class II   32          128        80             60.83   \$622,899.20

  Class III  100         200        40             60.83   \$486,640.00

  Total:                                                   \$**1,401,523.20**
  ---------- ----------- ---------- -------------- ------- --------------------

#### c. Annual Primary Safety and Security Route Analyses (Years 2-20)

After the first year's route analyses are completed, it is expected that
analyses performed on the same routes in subsequent years will take less
time. Subsequent primary route analyses must include a comprehensive,
systemwide review of all operational changes; infrastructure
modifications; traffic adjustments; changes in the nature of
high-consequence targets; in-place countermeasures and the community's
emergency response capability located along, or in proximity to, the
route; and any other changes affecting the safety or security of the
movements of the security-sensitive materials that were implemented
during the calendar year, as well as mitigation measures the carrier
intends to implement. It is anticipated that the majority of the routes
analyzed in year 1 will continue to be used in future years. Therefore,
these routes will require only a review to ensure there have been no
changes or planned mitigation measures that would impact the analyses in
the future years. It is also assumed that there will be few changes in
the high-consequence targets located along or in proximity to these
routes. It is further assumed that the railroads will experience some
change in commodity flow that will impact their primary routes each
year. However, a learning curve is anticipated. Therefore, the primary
route analyses will be done every year, but will take fewer hours than
the primary route analyses in year 1.

Again, an important determinate of costs is the number of routes that
must be analyzed. For the purpose of this interim final rule, it is
assumed that the railroads will consider each major corridor as a single
route to minimize the number of routes analyzed. The interim final rule
does not mandate how the railroads identify each route, but it is
reasonable to assume that railroads will use economic best practices.
Minimum, maximum, and most likely estimates are provided for the number
of routes by railroad class and the hours per route. The maximum number
of routes and hours were used to estimate this cost element. All Class I
railroads are estimated to have a minimum of 40 routes, a most likely of
42 routes, and at a maximum of 60 routes. The Class II railroads are
estimated to have a minimum of 64 routes, a most likely of 96 routes,
and a maximum of 128 routes. Class III railroads are estimated to have a
minimum of 100 routes, a most likely of 100 routes, and a maximum of 200
routes. Similar estimates were made for hours per route to perform the
analyses. Class I and Class II railroads are estimated to require a
minimum of 1.6 hours per route, a most likely of 8 hours per route, and
maximum of 16 hours per route. A Class III railroad is estimated to
require a minimum of 1.6 hours per route, a most likely of 6.4 hours per
route, and a maximum of 8 hours per route. The maximum number of routes
that are to be analyzed for each Class of railroad is multiplied by the
maximum number of hours the primary route analyses are anticipated to
take, times the hourly labor rate (\$60.83).

  --------------- ----------- ------------ ------------ ------------------
  Primary Route                                         
  Analyses --                                           
  Years 2-20                                            

  Railroad size:  Number of   Maximum      Maximum      Max. number of
                  railroads   number of    number of    routes\*max.
                  in class:   routes:      hours per    routes\* max.
                                           route:       hours \* hourly
                                                        labor rate

  Class I         7           60           16           \$58,396.80

  Class II        32          128          16           \$124,579.84

  Class III       100         200          8            \$97,328.00

  Total:                                                **\$280,304.64**
  --------------- ----------- ------------ ------------ ------------------

#### d. Alternate Route Economic, Safety, and Security Analyses (Year 1)

As previously noted, the interim final rule requires a rail carrier
transporting security-sensitive materials to use the data it compiles to
annually analyze the safety and security risks for all practicable
alternative routes which the carrier is authorized to use. When
determining practicable alternative routes, the rail carrier must
consider the use of interchange agreements with other rail carriers.
Rail carriers must also consider the potential economic effects of using
the alternative route, including, but not limited to, the economics of
the commodity, route, and customer relationship. The carrier must also
consider any remediation measures it intends to implement on a route.
Using this process, the carrier must at least annually compare the
safety and security risks on the primary and alternative routes and
select the practicable route posing the least overall safety and
security risk.

When selecting a primary route for the transport of hazmat, railroads
normally analyze all routes they consider commercially and economically
practicable. As stated previously, large railroads are more likely to
have alternate routes than smaller railroads, which operate over fewer
tracks. The larger railroads analyze all practicable alternate routes to
determine, given the operational knowledge of the railroad, the route of
a particular shipment on a particular day. Therefore, the maximum number
of practicable alternate routes analyzed by Class I railroads is the
same as the primary routes analyzed, which is 60. Class II railroads do
not operate over as much track as Class I railroads and may not have as
many practicable alternate routes. Class II railroads are estimated to
have a maximum number of 96 practicable alternate routes. Larger
railroads, Class I and Class II, carry hazmat farther distances than
smaller, Class III railroads. A practicable alternate route may not be
available in many instances to a Class III railroad. This analysis
conservatively assumes that half of the Class III railroads have
practicable alternate routes to reflect any mergers or transfers of
ownership. In subsequent years, the railroads should require less time
to complete analyses.

Minimum, maximum, and most likely estimates are provided for the number
of routes by railroad class and the hours per route. The maximum number
of routes and hours were used to estimate this cost element. The Class I
railroads are estimated to have a minimum of 40 alternate routes, a most
likely of 42 alternate routes, and a maximum of 60 alternate routes. All
Class II railroads are estimated to have a minimum of 24 alternate
routes, a most likely of 48 alternate routes, and a maximum of 96
alternate routes. The Class III railroads are estimated to have a
minimum of zero alternate routes, a most likely of 10 alternate routes,
and a maximum of 50 alternate routes. Similar estimates were made for
hours per route to perform the analyses. Class I and Class II railroads
are estimated to require a minimum of 48 hours per alternate route, a
most likely of 56 hours per alternate route, and maximum of 120 hours
per alternate route. A Class III railroad is estimated to require a
minimum of 8 hours per alternate route, a most likely of 32 hours per
alternate route, and a maximum of 40 hours per alternate route.

The maximum number of routes that are to be analyzed for each class of
railroad is multiplied by the maximum number of hours the alternate
route analyses is anticipated to take, times the hourly labor rate
(\$60.83).

  --------------- ----------- ----------- ------------- --------------------
  Alternate Route                                       
  Analyses --                                           
  Year 1                                                

  Railroad size   Number of   Maximum     Maximum       Max number of routes
                  railroads   number of   number of     \* max. hours \*
                  in class    routes      hours per     hourly labor rate
                                          route         

  Class I         7           60          120           \$437,976.00

  Class II        32          96          120           \$700,761.60

  Class III       100         50          40            \$121,660.00

  Total                                                 \$**1,260,397.60**
  --------------- ----------- ----------- ------------- --------------------

#### e. Alternate Route Economic, Safety, and Security Analyses (Years 2-20)

Subsequent alternative route analysis must include a comprehensive,
system-wide review of all operational changes; infrastructure
modifications; traffic adjustments; changes in the nature of
high-consequence targets located along, or in proximity to, the routes;
and any other changes affecting the safety or security of the movements
of the security-sensitive materials that were implemented during the
calendar year, as well as mitigation measures the carrier intends to
implement.

Performing the alternate route analyses in years 2 through 20 will only
require 10 percent of the time the first year's route analyses required.
This is based on estimates of limited changes in commodity flow or
shipment volume and other changes that would impact practicable
alternative routes to the primary route. The previously analyzed
alternate routes will require some review to ensure there have been no
changes that would impact the analyses in the future years; however, a
learning curve is anticipated.

Minimum, maximum, and most likely estimates are provided for the number
of routes by railroad class and the hours per route. The maximum number
of routes and hours was used to estimate this cost element. All 7 of the
Class I railroads are estimated to have a minimum of 40 alternate
routes, a most likely of 42 alternate routes, and a maximum of 60
alternate routes. The 32 Class II railroads are estimated to have a
minimum of 24 alternate routes, a most likely of 48 alternate routes,
and a maximum of 96 alternate routes. For the 100 Class III railroads,
it is estimated there are a minimum of zero alternate routes, a most
likely of 10 alternate routes, and a maximum of 50 alternate routes.
Similar estimates were made for hours per route to perform the analyses.
Class I and Class II railroads are estimated to require a minimum of 4.8
hours per alternate route, a most likely of 5.6 hours per alternate
route, and a maximum of 12 hours per alternate route. A Class III
railroad is estimated to require a minimum of 0.8 hours per alternate
route, a most likely of 3.2 hours per alternate route, and a maximum of
4 hours per alternate route.

The maximum number of routes that are to be analyzed for each Class of
railroad is multiplied by the maximum number of hours the alternate
route analyses are anticipated to take, times the hourly labor rate
(\$60.83).

  --------------- ----------- ----------- ------------- -------------------
  Alternate Route                                       
  Analyses --                                           
  Years 2-20                                            

  Railroad size   Number of   Maximum     Maximum       Max number of
                  railroads   number of   number of     routes \* max.
                  in class    routes      hours per     hours \* hourly
                                          route         labor rate

  Class I         7           60          12            \$43,797.60

  Class II        32          96          12            \$70,076.16

  Class III       100         50          4             \$12,166.00

  Total                                                 \$**126,039.76**
  --------------- ----------- ----------- ------------- -------------------

#### f. Annual Update of Safety and Security Plan (Years 1-20)

The interim final rule requires the railroads to ensure their existing
safety and security plans include the following elements: a procedure
for consulting with offerors and consignees to minimize storage
incidental to transportation; a procedure to inform the operator of
in-transit storage facilities and consignees that a rail car has been
delivered to their facility; measures to limit unauthorized access
during storage or delays in transit; measures to mitigate risk to
population centers associated with in-transit storage; and measures to
be taken in the event of an escalating threat level for materials stored
in transit. Most of these requirements were implicit in the original
security plan rule, and therefore should already be included in the
railroads existing security plans. However, in year 1 the railroads will
have to spend a minimum amount of time to review their existing security
plan to ensure these requirements are included. Additionally, because of
the specific nature of the new requirements, it is anticipated that the
railroads may have to make some minor modifications to their existing
security plans to ensure full compliance.

In years 2 through 20, the railroads must ensure that their safety and
security plans reflect the results of the route analyses and that the
procedures and measures to meet this requirement are updated as
appropriate. The changes expected in commodity flow and shipment volume
are anticipated to be minimal from year to year. Therefore, the amount
of time to complete the review and incorporate any identified changes
into the safety and security plan's required procedures and security
measures in years 2 through 20 is expected to be minimal, not exceeding,
and probably less, than in year 1.

The initial review and update of the safety and security plan in year
one will take a minimum amount of time. Class I and II railroads will
most likely spend 4 hours, with a minimum estimate of 1 hour. Class III
railroads may spend a minimum of 0.5 hours updating the document, with a
most likely estimate of 2 hours. The maximum estimate of 16 hours for
Class I and II railroads and 8 hours for smaller railroads is used for
conservative estimating of the cost. While the effort in years 2 through
20 is likely to be less than year one, an equal amount of time is
estimated to ensure conservatism.

The number of railroads in each class is multiplied by the maximum
number of hours required to update the existing safety and security
plan, and that total is multiplied by the hourly rate (\$60.83).

  --------------- ----------- ----------- ------------- -------------------
  Annual Update                                         
  of Safety and                                         
  Security Plan                                         
  -- Years 1-20                                         

  Railroad size   Number of   Minimum     Maximum       Number of
                  railroads   number of   number of     railroads\*max.
                  in class    hours       hours         hours \* hourly
                                                        labor rate

  Class I         7           1           16            \$6,812.96

  Class II        32          1           16            \$31,144.96

  Class III       100         0.5         8             \$48,664.00

  Total                                                 **\$86,621.92**
  --------------- ----------- ----------- ------------- -------------------

#### g. Storage and Delays in Transit Notifications/System Setup (Year 1)

The interim final rule requires a notification of storage and delays in
transit. Some large railroads already do this automatically through
their tracking systems. Shippers and consignees are able to log into the
system and determine where their shipment is located. Some railroads do
not do this automatically and may have to set up a system to do this.
This cost of setting up the system will occur in year one only. Class I
and II railroads will most likely spend 1.5 hours, with a minimum
estimate of 1 hour. Class III railroads may spend a minimum of 1 hour
setting up this system, with a most likely estimate of 1.5 hours. The
maximum estimate of 8 hours for Class I and II railroads and 4 hours for
Class III railroads is used for conservative estimating of the cost.
This cost is incurred only the first year in this analysis.

The number of railroads in each class is multiplied by the maximum
number of hours required to develop the delay in transit notification
system, and that total is multiplied by the hourly rate (\$60.83).

  --------------- ----------- ----------- ------------- -------------------
  Storage and                                           
  Delays in                                             
  Transit                                               
  Notifications /                                       
  System Set-up                                         
  -- Year 1                                             

  Railroad size   Number of   Minimum     Maximum       Number of
                  railroads   number of   number of     railroads\*max.
                  in class    hours       hours         hours \* hourly
                                                        labor rate

  Class I         7           1           8             \$3,406.48

  Class II        32          1           8             \$15,572.48

  Class III       100         1           4             \$24,332.00

  Total                                                 **\$43,310.96**
  --------------- ----------- ----------- ------------- -------------------

#### h. Anticipated Storage and Delay in Transit Notification (Years 1-20)

The annual notifications anticipated are multiplied by the time it is
expected to give each notification. Each notification is estimated to
take 30 minutes. Larger railroads will most likely spend 3 hours, with a
minimum estimate of no notifications. Smaller railroads may spend a
minimum of no hours on notifications, with a most likely estimate of 0.5
hours. A maximum number of notifications for each year are expected to
be 12 for Class I and II railroads and 2 for Class III railroads. This
analysis anticipates that although most notifications will be automatic,
there may be some notifications annually that are not automatic. This
cost is taken every year for 20 years.

The number of railroads in each class is multiplied by the maximum
number of hours estimated for delay in transit notifications, and that
total is multiplied by the hourly rate (\$60.83).

  --------------- ----------- --------------- ------------------- ---------------
  Anticipated                                                     
  Notifications                                                   
  -- Years 1 --                                                   
  20                                                              

  Railroad size   Number of   Maximum number  Maximum number of   Number of
                  railroads   of              hours               railroads
                  in class    notifications   (notifications @    \*max.
                                              0.5 hours ea. \* \# hours\*hourly
                                              of notifications    labor rate

  Class I         7           12              6                   \$364.98

  Class II        32          12              6                   \$364.98

  Class III       100         2               1                   \$60.83

  Total                                                           **\$790.79**
  --------------- ----------- --------------- ------------------- ---------------

#### i. Security Inspection Training (Years 1, 4, 7, 10, 13, 16, and 19)

Railroads are currently required to inspect each rail car containing
hazardous materials at ground level. This interim final rule will
increase the scope of these safety inspections to include a security
inspection of all rail cars carrying placarded loads of hazardous
materials. The primary focus of the enhanced inspection is to locate an
IED, which is a device fabricated in an improvised manner that
incorporates explosives or destructive, lethal, noxious, pyrotechnic, or
incendiary chemicals in its design, and generally includes a power
supply, a switch or timer, and a detonator or initiator. Because the
rail carriers are currently inspecting each rail car, no additional
inspection time will be required to comply with the interim final rule.
However, the rail carrier personnel will require training regarding
recognition of IEDs. This training must be incorporated into the rail
carrier's existing hazardous materials safety training, which must be
completed every three years.

The AAR has developed training which includes identification of IEDs.
The portion of the AAR training devoted to detection and identification
of IEDs takes fewer than 10 minutes. While each rail carrier is not
obligated to use the AAR training, 10 minutes is representative of the
expected time that will be added to the existing hazardous materials
safety training duration.

The total number of railroad employees as listed in "Railroad Facts 2004
Edition" published by AAR, is 174,062. Not all railroad employees will
be required to take this training. For Class I and Class II railroads,
100 percent of the listed employees are considered potentially affected
by this training requirement. Because only 20 percent of the Class III
railroads are impacted by this rule, for Class III, 20 percent of the
total employees were considered potentially affected by this training
requirement. The number of potentially affected employees is 162,529 for
the Class I and II railroads, and 2,307 for the Class III railroads. The
maximum number of employees is multiplied by the fraction of the hourly
rate (\$60.83), representing 10 minutes (\$10.14).

  --------------- ----------- ----------- ------------- --------------------
  Security                                              
  Inspection                                            
  Training (Years                                       
  1, 4, 7, 10,                                          
  13, 16, and 19)                                       

  Railroad size   Number of   Number of   Training      Number of
                  employees   expected    duration in   trainees\*training
                  in class    trainees    hours         duration\* hourly
                                                        labor rate

  Class I         154,652     154,652     ^1^/~6~       \$1,568,171.28
                                          (0.1667)      

  Class II        7,877       7,877       ^1^/~6~       \$79,872.78
                                          (0.1667)      

  Class III       11,533      2,307       ^1^/~6~       \$23,392.98
                                          (0.1667)      

  Total           174,062                               **\$1,671,437.04**
  --------------- ----------- ----------- ------------- --------------------

### 2. Total 20-Year Costs 

In this analysis, Class I and II railroads are considered "large
railroads' and Class III railroads are considered "smaller railroads."
There are 7 Class I railroads, 32 Class II railroads, and 510 Class III
railroads.[^17] All Class I and II railroads will probably be affected
by this interim final rule, but not all Class II railroads carry
hazardous materials. It is estimated that approximately 100 Class III
railroads carry hazardous materials. The majority of Class III railroads
do not carry hazardous materials on a daily basis; in fact, some Class
III railroads carry hazardous materials fewer than 5 times annually.

**Rail Carriers Subject to Interim Final Rule**

  -----------------------------------------------------------------------
  **Number of Affected Rail Carriers by Size**

  39 large railroads

  100 small railroads

  139 total
  -----------------------------------------------------------------------

#### a. Large Railroads 

The 39 larger railroads affected by this rule have different cost
estimates than the 100 smaller railroads affected by this rule. The
following chart summarizes the total 20-year costs for larger railroads.

![](media/image1.wmf)

#### b. Smaller Railroads 

The 100 smaller railroads affected by this interim final rule have
different cost estimates than the 39 larger railroads. The following
chart summarizes the total 20-year costs for smaller railroads.

![](media/image2.wmf)

### 

### 3. Total 20-Year Cost 

![](media/image3.wmf)

### 4. Sensitivity Analysis 

The purpose of sensitivity analysis is to acknowledge the underlying
uncertainty of estimates. Sensitivity analysis will convey how sensitive
predicted net costs are to changes in assumptions. Partial sensitivity
analysis will show how net costs change when a single assumption is
varied while holding all others constant.

#### a. Labor Rate 

The labor rate has the largest effect on the cost of the interim final
rule. The costs of the interim final rule will be calculated again using
a higher labor rate. The costs will be calculated for an hourly labor
rate of \$75.93. This labor rate is for "executives, officials & staff
assistants" with average annual wages of \$94,916.[^18] This rate was
selected because it is the highest rate in the wage industry, according
to the 'Railroad Facts' book, and as such, would represent the highest
cost to the industry. This rate was divided by 2,000 hours to obtain an
hourly wage rate, and multiplied by 1.6 for fringes and overhead. The
result is an hourly wage rate of \$75.93. The wage rate used previously
is \$60.83, including fringes and overhead. The resulting higher labor
rate increases the total 20-year costs, discounted at 7 percent, for all
railroads to \$21,736,241.92. This increases the total 20-year cost of
the interim final rule by \$4,324,117.19, or less than \$5 million.

  ----------- -------------- ---------------- ---------------- ---------------- -------------- -------------- ---------------- ---------------------
  Maximum                                                                                                                      
  Total                                                                                                                        
  20-Year                                                                                                                      
  Costs for                                                                                                                    
  All                                                                                                                          
  Railroads                                                                                                                    
  With Higher                                                                                                                  
  Labor Rate                                                                                                                   
  of \$75.93                                                                                                                   

  Yr          Data           Primary Route    Alternate Route  5-Year Review    Update         Delay          Security         Sums
              Collection     Analyses         Analyses                          Security Plan  Notification   Inspection       
                                                                                                              Training         

  1           \$422,170.80   \$1,749,427.20   \$1,573,269.60                    \$108,124.32   \$55,049.25    \$2,086,823.76   \$5,994,864.93

  2           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  3           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  4           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  5           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  6           \$422,170.80   \$349,885.44     \$157,326.96     \$1,749,427.20   \$108,124.32   \$987.09                        \$1,038,494.61

  7           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  8           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  9           \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  10          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  11          \$422,170.80   \$349,885.44     \$157,326.96     \$1,749,427.20   \$108,124.32   \$987.09                        \$1,038,494.61

  12          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  13          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  14          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  15          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  16          \$422,170.80   \$349,885.44     \$157,326.96     \$1,749,427.20   \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  17          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  18          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

  19          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09       \$2,086,823.76   \$3,125,318.37

  20          \$422,170.80   \$349,885.44     \$157,326.96                      \$108,124.32   \$987.09                        \$1,038,494.61

                                              Total 20-Year                                                                    \$38,247,205.08
                                              Costs (Not                                                                       
                                              Discounted)                                                                      

                                              Total 20-Year                                                                    \$29,277,426.34
                                              Costs Discounted                                                                 
                                              3%                                                                               

                                              Total 20-Year                                                                    **\$21,736,241.92**
                                              Costs Discounted                                                                 
                                              7%                                                                               

                                                                                                                               

                                                                                                                               
  ----------- -------------- ---------------- ---------------- ---------------- -------------- -------------- ---------------- ---------------------

#### b. Discount Rates 

Discount rates of both 3 percent and 7 percent were used in these
analyses. PHMSA, however, believes that 7 percent is more appropriate
because this rate more accurately reflects the cost of forgone capital
investment. The following table provides a comparison of both rates.

+----------------------------------------+-------------+--------------+
| ######## A Comparison of               |             |              |
| Results Using 3% and 7% Discount Rates |             |              |
|                                        |             |              |
| ####                                   |             |              |
+----------------------------------------+-------------+--------------+
|                                        | **3% PV**   | **7% PV**    |
+----------------------------------------+-------------+--------------+
| COSTS:                                 |             |              |
+----------------------------------------+-------------+--------------+
| Total Maximum 20-Year Costs for        | \$6         | **\$4,       |
| Smaller Railroads:                     | ,605,555.92 | 833,090.49** |
+----------------------------------------+-------------+--------------+
| Total Maximum 20-Year Costs for Larger | \$16        | **\$12,      |
| Railroads:                             | ,847,505.48 | 579,034.23** |
+----------------------------------------+-------------+--------------+
| Total Maximum 20-Year Costs for All    | \$23        | **\$17,      |
| Railroads:                             | ,453,061.41 | 412,124.73** |
+----------------------------------------+-------------+--------------+

## 

## E. Specialized Analytical Requirements

### 1. Impact on Small Businesses and Other Small Entities

This section is intended to fulfill the requirements of the Regulatory
Flexibility Act.[^19] Further, this document outlines PHMSA's efforts to
minimize the adverse economic impact on small entities and to verify
sufficient outreach to these entities.

This Small Entity Impact Assessment and Evaluation concludes, based on
current data, that the interim final rule would not have a significant
economic impact on a substantial number of small entities. In order to
determine the significance of the economic impact for the rule's
Regulatory Flexibility Act requirements, PHMSA invited comments from all
interested parties concerning data and information regarding the
potential economic impact caused by the NPRM during the public comment
period. No comments were received.

The *factual basis* for the certification that this interim final rule
will not have a significant economic impact on a substantial number of
small entities is that the interim final rule is estimated to cost an
average of less than \$4400 (not discounted) per affected small railroad
per year, and only 20 percent of small entities are impacted. Individual
railroads within the small entity segment, however, will realize
different impacts. There are approximately 510 smaller railroads in the
United States. As will be explained in greater detail later in this
document, approximately 400 small railroads will have no economic impact
from the interim final rule.

In addition to its conclusion that this interim final rule will not have
a significant economic impact on a substantial number of small entities,
PHMSA further concludes that the regulation will not have a noticeable
impact on the *competitive position* of those small entities that are
impacted, or on the small entity segment of the industry as a whole.

The small entity segment of the railroad industry faces little in the
way of intramodal competition. Small railroads generally serve as
"feeders" to the larger railroads, collecting carloads in smaller
numbers and at lower densities than would be economical for the larger
railroads. They transport those cars over relatively short distances and
then turn them over to the larger systems which transport them
relatively long distances to their ultimate destination, or for handoff
back to a smaller railroad for final delivery. Although there are
situations in which their relative interests may not always coincide,
the relationship between the large and small entity segments of the
railroad industry are more supportive and codependent than competitive.

It is also extremely rare for small railroads to compete with each
other. As mentioned above, small railroads generally serve smaller,
lower density markets and customers. They exist, and often thrive, doing
business in markets where there is not enough traffic to attract the
larger carriers that are designed to handle large volumes over distance
at a profit. As there is usually not enough traffic to attract service
by a large carrier, there is also not enough traffic to sustain more
than 1 smaller carrier. In combination with the huge barriers to entry
in the railroad industry (need to own right-of-way, build track,
purchase fleet, etc.), small railroads rarely find themselves in
competition with each other. Thus, even to the extent that the interim
final rule may have an economic impact, it should have no impact on the
intramodal competitive position of small railroads.

#### a. Small Entities Affected

The U.S. Small Business Administration (SBA) stipulates in its "Table of
Size Standards" that a for-profit railroad business firm may not have
more than "1,500 employees for 'line-haul operating' railroads, and 500
employees for 'switching and terminal establishments' to be considered a
small entity.[^20] "Small entity" is defined in 5 U.S.C. 601 as a small
business concern that is independently owned and operated, and is not
dominant in its field of operation. SBA's size standards may be altered
by Federal agencies upon consultation with SBA and in conjunction with
public comment.

Pursuant to that authority, FRA has published a final policy classifying
small entities as railroads meeting the line haulage revenue
requirements of a Class III railroad.[^21] Currently, the revenue
requirements are \$20 million or less in annual operating revenue. The
\$20 million limit is based on the STB's threshold of a Class III
railroad carrier, which is adjusted by applying the railroad revenue
deflator adjustment.[^22] The same dollar limit on revenues is
established to determine whether a railroad shipper or contractor is a
small entity. PHMSA is using this definition of a small entity for
regulatory flexibility purposes in this rulemaking.

For this rulemaking, there are approximately 100 small railroads that
could potentially be affected by this regulation. All 510 local railroad
operations[^23] do not transport hazardous materials and are not
required to meet any of the requirements of this interim final rule.
Thus, approximately 410 very small railroad operations will incur no
burden from this rulemaking. The provisions of this interim final rule
will affect only railroads carrying certain hazardous materials. Only 20
percent of small railroads may be impacted, while 100 percent of large
railroads will be impacted by this interim final rule.

#### b. Reporting, Record-keeping, and Other Compliance Requirements

The reporting or recordkeeping requirements in this rulemaking are the
retention of hazardous material movement data and analyses of the routes
the material travels. The railroads are required to retain this hazmat
movement data and associated analyses.

#### c. Impacts

The impacts result primarily from the cost of data collection and
analyses. This cost is estimated using labor hours. The labor hours are
estimated at a value of \$60.83 per hour. Because smaller railroads
carry less hazmat less frequently than larger railroads, proportionately
both data collection and analyses will take less time.

Approximately 100 smaller railroads may be impacted by this interim
final rule. It is estimated that this rule will cost, at a maximum, each
impacted small railroad \$4,359 per year for 20 years (not discounted).

#### d. Alternative Treatment for Small Entities

Because smaller railroads carry hazmat less frequently and in lesser
quantities than larger railroads, proportionately both data collection
and analyses will take less time.

#### e. Outreach to Small Entities

PHMSA encouraged small entities that could potentially be impacted by
this rulemaking to participate in the public comment process by
submitting comments on this assessment or this rulemaking to the
official DOT docket for this rulemaking.[^24] No comments were received.

#### f. Conclusion

The requirements of this interim final rule are intended to reduce the
likelihood and severity of future hazardous material releases, whether
accidental or intentional. It is also intended to decrease the risk of a
release to the public.

This Small Entity Impact Assessment and Evaluation concludes that this
interim final rule may have an economic impact on 20 percent of small
railroads. In order to determine the significance of the economic impact
for the rulemaking's Regulatory Flexibility Assessment, PHMSA invited
comments from all interested parties concerning the potential economic
impact on small entities caused by the notice of proposed rulemaking. No
comments were received.

Executive Order No. 13272, "Proper Consideration of Small Entities in
Agency Rulemaking," requires a Federal agency, *inter alia*, to notify
the SBA's Chief Counsel for Advocacy of any of its draft rules that
would have a significant economic impact on a substantial number of
small entities, to consider any comments provided by the SBA, and to
include in the preamble to the rule the agency's response to any written
comments by the SBA, unless the agency head certifies that including
such material would not serve the public interest.[^25] Since PHMSA has
determined that this interim final rule may have significant impact, but
only on a small number of small entities, notification to SBA has been
provided for this purpose.

[^1]: This rulemaking was formerly designated as HM-232E; however, with
    the transition to a new government-wide regulations portal, docket
    number nomenclature has since changed. Some references to the old
    docket number are still present in this document.

[^2]: Class I railroads, as designated by the Surface Transportation
    Board (STB), are those railroads with operating revenues of \$272
    million or more. Regional railroads, referred to as Class II, are
    those with at least 350 route-miles and/or revenue of between \$40
    million and the Class I threshold.

[^3]: "Overview of U.S. Freight Railroads." AAR Policy and Economics
    Department, February 2005, p.1.

[^4]: 'Hazmat Transport: Mandatory Rerouting and Pre-Notification,' AAR
    Policy and Economic Department, April 2005, pp 1-3

[^5]: American Chemistry Council Web site, August 20, 2002.

[^6]: Donald William Reid, 'Information Regarding the use of Chlorine in
    Terror Attacks,' May 16, 2007, p.33.

[^7]: DHS has designated the following hazardous materials as
    security-sensitive materials: (1) more than 2,268 kg (5,000 lbs) in
    a single carload of a Division 1.1, 1.2, or 1.3 explosive; (2) a
    bulk quantity of a materials poisonous by inhalation, as defined in
    49 CFR § 171.8 (including anhydrous ammonia); or (3) a highway
    route-controlled quantity of a Class 7 (radioactive) material, as
    defined in 49 CFR§ 173.403.

[^8]: Year 1 is the year that the final rule will begin to have effects.

[^9]: The UASI is designed to set a strategic direction for the
    enhancement of regional response capability and capacity.
    UASI's mission is to reduce area vulnerability and prevent terrorism
    and/or incidents involving weapons of mass destruction. Through
    Federal grant funding, UASI is tasked to reduce area vulnerability
    by strengthening the cycle of response and by ensuring that
    potential targets are identified, assessed, and protected.  The UASI
    program provides financial assistance to address the unique
    multi-discipline planning, operations, equipment, training, and
    exercise needs of high-threat, high density urban areas, and to
    assist them in building and sustaining capabilities to prevent,
    protect against, respond to, and recover from threats or acts of
    terrorism. Funds provided under this grant are designed to address
    the unique needs of large urban areas and mass transit authorities.
    Funds can be used for equipment, training, exercises, and planning.

[^10]: Data are from National Transportation Safety Board, Report of
    Railroad Accident Collision of Norfolk Southern Freight Train 192
    with Standing Norfolk Southern Local Train P22 with Subsequent
    Hazardous Materials Release Graniteville, SC January 6, 2005,
    NTSB/RAR-05/04, Public Meeting Executive Summary, November 29, 2005.

[^11]: Data are from Earl Hunter, Commissioner, South Carolina
    Department of Health and Environmental Control.

[^12]: 'Emergency workers share lessons from Graniteville disaster',
    Georgiana Stark, Virginian-Pilot Web site, October 13, 2005,
    reposted by the Brotherhood of Locomotive Engineers and Trainmen at
    http://www.ble.org/pr/news/pf_headline.asp?id=14722.

[^13]: Data are from NTSB Report of Railroad Accident Collision of
    Norfolk Southern Freight Train 192 with Standing Norfolk Southern
    Local Train P22 With Subsequent Hazardous Materials Release
    Graniteville, SC January 6, 2005, NTSB/RAR-05/04, Public Meeting
    Executive Summary, November 29, 2005.

[^14]: Calculation made with the CPI inflation calculator located at
    www.bls.gov.

[^15]: 'Railroad Facts', Association of American Railroads, 2004, p.3.

[^16]: Calculation: ((\$94,916+\$57,166)/2)/2,000 hours\*1.6=\$60.83.

[^17]: 'Railroad Facts', Association of American Railroads, 2004, p.3.

[^18]: 'Railroad Facts,' 2004 Edition, AAR, p. 57. A 60 percent overhead
    is used in an effort to be extremely conservative.

[^19]: 5 U.S.C. § 601, et seq.

[^20]: "Table of Size Standards," SBA, January 31, 1996, 13 CFR Part
    121.

[^21]: See 68 FR 24891 (May 9, 2003).

[^22]: For further information on the calculation of the specific dollar
    limit, please reference, *49 CFR Part 1201*.

[^23]: There are approximately 510 local railroads according to
    'Railroad Facts', AAR, 2004 edition.

[^24]: http://dms.dot.gov/

[^25]: See 67 FR 53461 (Aug. 16, 2002).