Law360, New York (March 9, 2016, 12:04 PM ET) -- The controversy surrounding the rejected Keystone XL pipeline and the resulting heightened sensitivity to the location of new pipelines has come at a time when the level of oil production in North America has resulted in a need for additional pipeline infrastructure. While the US Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) continues to take the position that pipelines are “extremely safe when compared to other modes of energy transportation,” some members of the public are concerned about pipelines traversing their neighborhoods.
The clash between the need for additional infrastructure and the efforts of state and local governments and others to constrain crude oil pipeline construction or operation has set the stage for what might be a significant wave of litigation. State and local jurisdictions increasingly are: (1) considering actions to altogether deny required authorizations for new pipeline permits; (2) attempting to impose requirements that govern how a crude oil pipeline may be operated in their communities; and (3) passing ordinances that are designed to ensure that local resources are adequately protected in the event of a spill from interstate crude oil pipelines.
A primary driver behind such efforts to constrain pipeline construction or operations has been the perceived risk of spills from crude oil pipelines. Pipelines transporting Canadian heavy crude of the sort that would have been transported by the Keystone XL pipeline have come under particular scrutiny, although the effort to regulate pipelines at the state and local levels has extended to pipelines carrying any crude type.
Given the growth in state and local efforts to prevent or restrict the ability of interstate pipelines to operate, it is not surprising that courts are being called upon with increasing frequency to determine the lawfulness of such efforts. While each situation needs to be assessed based on the relevant facts, federal and state law may provide a basis for challenging such restrictions. Here, we focus on two federal grounds on which such restrictions may be open to attack; specifically, federal statutory preemption and dormant commerce clause arguments may be among the tools available for challenging state and local actions that directly or indirectly impede interstate pipeline operations.
For example, Section 60104 of the Pipeline Safety Act (PSA) expressly preempts a local authority from adopting or continuing in force any safety standard for interstate crude oil pipelines. While states and local governments are generally free to regulate the siting and routing of crude oil pipelines through their jurisdictions, they may not impose any requirements that are designed to regulate the safety of a pipeline. A preempted local regulation may take the form of an express safety provision of the kind found in PHMSA regulations, or it may be an operational restriction or requirement driven by a public safety concern.
The dormant commerce clause of the US Constitution also provides a tool to challenge states or localities from imposing requirements on interstate crude oil pipelines. Any state or local action that is discriminatory towards interstate pipelines (e.g., by applying only to interstate pipelines that transport heavy crude) is susceptible to commerce clause challenge. Even if the action at issue is not discriminatory, state requirements or actions that are excessively burdensome on interstate pipelines, such as those that may impede the ability of pipelines to feasibly operate, may also be overturned as unconstitutional. This is true regardless of whether the requirement by itself causes an undue burden, or if when viewed together with similar requirements that may be enacted by other jurisdictions a cumulative excessive burden would result that is not justified by a legitimate local purpose.
An important precedent may emerge from pending litigation involving the Portland Pipe Line Corporation (PPLC) in Maine. The PPLC has challenged an ordinance passed by the city of South Portland that prohibits the PPLC from reversing the flow of its existing pipeline. The city passed the ordinance with the alleged intent of preventing the PPLC from reversing its northbound flowing pipeline to carry heavy crude from Canada to the Maine coast to allow for further transportation by vessel to coastal refineries.
In response, the PPLC filed a complaint in the US District Court for the District of Maine, alleging (among other claims) that the city’s ordinance is preempted by the PSA and constitutes an unconstitutional burden on interstate commerce. The PPLC additionally claimed that the ordinance interferes with the president’s constitutional authority over foreign affairs because a presidential permit has been issued for the pipeline that allows for the transportation of crude oil between the United States and Canada. The city moved to dismiss the claims on standing and ripeness grounds.
On Feb. 11, 2016, the district court denied the city’s motion, concluding that the PPLC’s claims were ripe and that it had standing to challenge the ordinance because the PPLC had sufficiently demonstrated that its activities were subject to the ordinance and that it would pursue reversal of its pipeline if not for the ordinance. A schedule for summary judgment briefing has not yet been set.
Any decision on the merits of the PPLC’s claims will certainly provide insight into the ability of local jurisdictions to pass and enforce ordinances that impede the ability of interstate crude oil pipelines to operate through local jurisdictions.
Commerce clause arguments have also been raised with respect to the Georgia Department of Transportation’s (GDOT) denial of the certificate of public convenience and necessity for the Palmetto Pipeline, a pipeline that would transport crude oil from Louisiana to Florida. The GDOT’s denial was, in part, due to its determination that Georgia would receive less benefit from the pipeline as compared with other states. The company, in challenging the denial, has argued that the GDOT’s decision imposes unconstitutional interference with interstate commerce because it seeks to protect Georgia’s interests at the expense of interstate oil transport.
Other litigation or potential litigation in this area includes challenges arising from an insurance requirement imposed by a county as a condition to constructing a pump station for an interstate crude oil pipeline, and threats by several northeast localities to enact measures designed to prevent a new crude oil pipeline from locating within their borders.
Further litigation in this area seems likely. In the absence of new federal legislation prohibiting local interference with interstate pipelines on nonsafety grounds, the courts will be called upon to determine whether such interference can stand.