A recent state-law challenge by environmental groups to an aspect of crude-by-rail transportation has teed up the question of federal supremacy over railroad regulation. Because federal law generally preempts state regulation of railroads, the environmental groups must fashion their state-law challenges to invoke a traditional area of state regulation – in many instances, land use. But a recent petition filed by environmental groups in New York State attempts to finagle state regulation over an aspect of rail transportation traditionally preempted by federal law.
The bottom line is this: Bakken players will continue to face state-law challenges to any midstream or end-user project that transports or receives crude by rail. Effectively managing and combating these challenges will require both Bakken players' and trade associations' proactive involvement to monitor and attack environmental groups' state-law challenges that push the boundaries of permissible state regulation.
With a high-volume horizontal hydraulic fracturing moratorium, New York State represents one of the most unfriendly environments for unconventional shale development. It comes as no surprise, then, that the state has emerged as a battleground for Bakken crude-by-rail transportation.
New York State officials have been active in calling on other states and federal regulators to tighten crude-by-rail safety. Most recently, New York State asked North Dakota to implement regulations that require "stabilization" of Bakken crude prior to shipment. Increasingly hostile opposition plagues projects involving crude-by-rail. One company's application to modify an existing facility stalled because the New York State Department of Environmental Conservation ("NYSDEC") has extended the public comment period four times. And the same company completely abandoned a separate permit application for an oil terminal expansion. Fueled by these results, environmental groups are pushing harder in New York State.
On October 20, 2014, Earthjustice, on behalf of numerous petitioners, filed a petition with the NYSDEC requesting a summary abatement order "prohibiting receipt and storage of Bakken crude oil in DOT-111 tank cars" at two transloading facilities and throughout the state of New York.
The petition claims to invoke the state's regulatory power over the transloading facilities. But by seeking a blanket prohibition on crude oil "receipt and storage" in DOT-111s, the...