Recently, we covered environmental groups’ increasing array of state-law challenges to midstream and end users of Bakken crude that transport or receive oil by rail. Since then, a California regulator has admitted to erroneously permitting a crude oil transloading facility without complying with the proper environmental review, and the company has voluntarily returned the permit. These developments signal a setback for recently permitted and proposed transloading facilities. Because the setback likely means that environmental groups will continue to pursue similar state-law challenges in California, Bakken players and trade associations must proactively involve themselves with state and local regulators to ensure valid permitting.

In late September 2014, environmental groups represented by Earthjustice filed a lawsuit in California state court that challenged a transloading facility’s permit.1 The lawsuit alleged that the Sacramento Air Quality Management District violated the California Environmental Quality Act when the district issued the crude oil rail-to-truck transloading permit without public notice and comment.

The district has since admitted that it erroneously issued the permit without the requisite “full CEQA review.”3 The company, InterState Oil, has now voluntarily returned the permit and recently stopped using the facility for crude oil transloading.4

The environmental groups have hailed the relinquished permit as “the first crude transfer project that has been stopped dead in its tracks,”5 but the company’s voluntary return of the permit signals much less.

Assuming that CEQA actually applies to this type of permit, the takeaway from the returned permit is that crude oil midstream and end users must proactively engage state and local regulators about proposed transloading projects to avoid permit invalidation due to noncompliance with CEQA or analogous environmental laws in other states. Compliance with these laws undoubtedly means project delays,6 but ensuring that the project adheres to the proper permitting procedures will help prevent additional delays and costs caused by subsequent operational interruptions.