By Dave Sherwood
AUGUSTA, Maine, July 11 (Reuters) - A steep decline in revenues from pipeline tariffs and a loophole that allowed companies shipping crude by rail to avoid payment have slashed Maine's oil-spill fund to levels experts say could hurt its ability to respond to an accident.
Focus on the safety issue has intensified in the wake of the deadly Lac-Megantic disaster in Quebec. Maine's emergency fund has shrunk more than 40 percent over nine years. Surging train shipments, meanwhile, are making the state one of the biggest conduits of crude produced from U.S. shale to Canada.
According to Maine Department of Environmental Protection figures obtained by Reuters, revenues of the Maine Coastal and Inland Surface Oil Clean-up Fund have dropped from $6.7 million in 2003 to $3.7 million in 2012.
The fund collects a 3 cent per barrel transit tax on crude oil and refined petroleum products. Expenditures from the fund have exceeded revenues in four of the past five years.
In addition, one of Maine's two primary oil-by-rail transporters, Pan Am Railways, stopped paying any fees into the fund in April, according to Maine DEP records.
The company has declined to comment on why it halted payments.
"We are investigating the matter thoroughly and if necessary will take appropriate enforcement action," said Logan on Wednesday.
Montreal Maine & Atlantic, owner of the line on which the Quebec derailment occurred, has continued to pay the tariff. But by December 2012, the fund's balance dropped to $1.9 million, less than a third of the $6 million cap set by law and a level that raised concerns from some members of the committee that helps oversee the fund.
"Anything below $2 million puts us in a precarious spot," said Joe Payne, a member of the oil spill advisory committee.
Shipments of oil through the state are much lower than they were in 2003, in theory reducing the risk of a spill. But the cost of cleaning up after one is the same.
While Canada is a major oil producer, its east-coast refineries are heavily dependent on expensive foreign oil shipped across the Atlantic. To cut costs, cheap crude, transported by rail from North Dakota and other shale oil plays, has become an increasingly attractive alternative. The Portland-Montreal Pipeline, Maine's only pipeline system, currently flows inland from Portland to Montreal and is unable to meet demand, leaving suppliers dependent on rail.
Graphic on Maine oil traffic: http://link.reuters.com/tyn59t
PIPELINE FLOW DOWN
Maine's cleanup fund covers salaries and training for first responders, as well as equipment and maintenance, ensuring a quick reaction and shielding taxpayers from the costs of litigation to recoup the costs of an initial spill recovery.
Transport of crude through the state dropped off 60 percent from 2005 to 2012, mostly because of a decline in flows from the Portland-Montreal pipeline as refinery closures in Montreal crimped demand.
The line is the largest contributor to the fund. Output has dropped from over 350,000 barrels per day in 2007 to just over 150,000 bpd in the first five months of 2013.
"With this much of a drop, how is the fund going to do anything but eventually peter out?" said Payne.
The fund's financial woes come even as railroad transportation of crude oil through Maine is booming, up from zero in 2010 to over 14,000 bpd in 2012. That number swelled to over 28,000 bpd in March but is still far below historical totals for pipeline transportation, crippling fund revenues.
To help stem revenue loss, Payne, the DEP and state environmental groups testified in favor of legislation this spring that clarified an existing law, requiring all carriers of crude - truck, rail and pipeline - to pay the 3 cent per barrel fee, closing any loophole for railways to avoid the tariff. The bill passed the legislature and becomes law in October.
RESPONSE SERVICES ALREADY STRETCHED
Another amendment, promoted by state environmental groups and some oil spill committee members, would have triggered an additional tariff of 1.5 cents per barrel should the fund fall below $2 million, but it failed to pass. Payne and others believe any smaller amount would render the fund inadequate in the event of a major spill.
Ryan Tipping-Spitz, the state lawmaker who presented the bill, said he didn't feel an additional penny per barrel would be too much to ask given the risk of serious environmental damage should such a spill occur.
"The people who cause that risk should be putting money on the table," he said.
The fund's 3 cent per barrel fee has not changed in 20 years, according to meeting minutes of the oil spill advisory committee.
Despite the fund's dwindling coffers, the Maine Department of Environmental Protection testified against Tipping-Spitz's legislation, citing other cleanup funding sources.
On Tuesday, Maine DEP spokeswoman Jessamine Logan said the state agency continued to ensure that "expenses are below revenue" and said it had instituted "more aggressive cost-recovery mechanisms following a spill" that require the responsible party to pay for the cleanup.
Peter Blanchard, director of response services for the agency, said short-term funding was secure but acknowledged his staff was stretched thin, with planning for future spills often inhibited by the need to respond to other kinds of accidents.
Payne said he doubted the current revenues, even with the newly passed legislation, would be enough, given the declines in crude transport by pipeline and the amount traveling by rail.
"There may be less oil coming through Maine, but that doesn't mean there's less risk of a major spill. Accidents can happen, and we need to be ready to respond," said Payne. (Editing by Matthew Robinson and Prudence Crowther)