The agency said it planned to take away the certificate of fitness for the Montreal, Maine & Atlantic Railway and its Canadian subsidiary, effective Aug. 20.
The transportation agency said it wasn't satisfied that the troubled company, which has filed for bankruptcy since the July 6 disaster, has demonstrated that its third-party liability insurance is adequate for ongoing operations.
The parked train, with 72 tankers of crude oil, was unattended when it began rolling and derailed in the center of Lac-Megantic. Several tankers exploded, destroying 40 buildings. The company has blamed the train's operator for failing to set enough hand brakes.
The agency said the disaster has raised questions about the growing use of rail transport for oil, including important ones regarding the adequacy of third-party liability insurance coverage to deal with catastrophic events, especially for smaller railways.
"This was not a decision made lightly, as it affects the economies of communities along the railway, employees of MMA and MMAC, as well as the shippers who depend on rail services," Geoff Hare, the agency's chief executive, said in a statement.
Spokeswoman Jacqueline Bannister said the transportation agency could reconsider its decision if the railway demonstrates they have sufficient insurance. Bannister said the company did provide some information to the agency, but they did not get all the information requested. She said they were looking to see if the railway was able to restore their insurance level to at least what existed prior to the derailment, but the railway failed to do so. MMA and MMAC were informed of the decision Tuesday morning before the public announcement, she said.
In the wake of the disaster, the regulator has also announced plans to review the insurance coverage of federally regulated railways this fall, given sharp increase in shipments of crude oil in recent years. This year, more trains carrying crude will chug across North America than ever before nearly 1,400 carloads a day. In 2009, there were just 31 carloads a day.
Bannister said they will consult with the railway and insurance industries during the review.
"We have to be satisfied that the insurance coverage is sufficient," he said.
In its bankruptcy filings, the Canadian subsidiary said it only had $25 million in insurance coverage, while estimating the environmental cleanup alone will exceed $200 million. The railway and its Canadian counterpart, Montreal, Maine & Atlantic Canada Co., also cited debts to more than 200 creditors following the disaster.
Messages left at the office of MMA chairman Ed Burkhardt were not immediately returned.
Lac-Megantic and the Quebec government have sent legal notices to the railway, demanding it reimburse the town nearly $8 million in environmental cleanup costs.
Pierre Arseneau, a union representative for MMA workers in Quebec, said he was disappointed the railway will lose its operating license next week, but he understands the importance of having sufficient insurance coverage. Arseneau, a member of the United Steelworkers, is concerned about the dozens of jobs at stake and hopes another operator will take over the railroad quickly.
Twenty-four of the railway's 75 employees in Quebec have already lost their jobs since the derailment, but Arseneau fears the impact of the suspension could reach well beyond MMA if a solution isn't found quickly. "It's also the whole economy of the region," Arseneau said. "There are lots of companies that depend on the railroad."
The Canadian decision had no immediate effect across the border because the severed rail line meant Maine shippers have had to reroute traffic.
The U.S. Surface Transportation Board could step in to appoint someone to operate the line if Montreal, Maine & Atlantic stops rail service or if the service deteriorates, said Nate Moulton, rail director for the Maine Department of Transportation.
But MM&A already announced intentions to sell the rail line to another party to generate money to pay its debts, Moulton said.
Associated Press Writer David Sharp in Portland, Maine contributed to this report.