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Pipeline Appeals Grant of Summary Judgment to South Portland Regarding Its Ban on Marine Loading of Crude Oil

Judge Woodcock of the U.S. District Court in Portland, finding that the South Portland's Clear Skies Ordinance (the Ordinance) was neither a "preempted pipeline facility safety standard or a discriminatory ordinance enacted for an economically protectionist purpose," granted summary judgment to the City on October 9, 2018. Last month, on November 7, 2018, the Portland Pipeline Line Corporation (PPLC) filed a notice of appeal from that summary judgment order, a hearing date is pending. According to a press statement, PPLC remains convinced "that the so-called Clear Skies ordinance is preempted by state and federal law and otherwise violates the United States Constitution." "Portland Pipe Line Corp. plans to appeal court ruling on 'Clear Skies' ordinance," Portland Press Herald (Nov. 7, 2018). At a time when attention and pressure is mounting for infrastructure projects around the State, this order--and whether the First Circuit affirms it--will be a noteworthy signal for energy and utility industry stakeholders regarding the bounds of local control.

The Clear Skies Ordinance is a zoning measure that the City Council of South Portland enacted by a six to one vote in July of 2014. Portland Pipe Line Corp. v. City of South Portland, Docket No. 2:15-cv-000540JAW, 2018 WL 4059374 *13 (Dist. Me. Oct. 9, 2018). Residents lobbied for the zoning measure in response to PPLC's increasing interest, as of 2007, in reversing the flow of its oil pipeline and shipping from South Portland crude oil derived from oil sands in Canada's and North Dakota's unconventional oil reserves. *5-14. The Ordinance's stated purpose, similar to most zoning ordinances, is to "protect the health, safety and welfare of the City's residents." *21. The principal effect of the Clear Skies Ordinance, however, is to prohibit the "storing and handling of petroleum and/or petroleum products for the bulk loading of crude oil onto any marine tank vessel" in the zoning districts in which PPLC operates its oil tank farm, which has since 1941 transported oil and at times natural gas between South Portland and Canada. * 3, 13.

PPLC and co-plaintiff, American Waterways Operators, filed a nine-count complaint on February 6, 2015, principally arguing that the Ordinance is preempted by federal pipeline safety and waterway safety statutes, the President's foreign affairs power, and the Commerce Clause. *1. PPLC and the Court both painted a stark reality for the pipeline: if the Ordinance is upheld, PPLC will likely go out of business. Id. at * 35, 41.

After a four-day bench trial, the Court issued an order of summary judgment to the City on all counts except for the two dealing with (1) the Commerce Clause issues and (2) a civil rights claim that the court dismissed without prejudice. *2. The court denied PPLC's summary judgment motion in full. Id. Concluding that the Ordinance was not per se invalid as an extraterritorial or discriminatory regulation, the Court found "little difference between the Ordinance and other zoning prohibitions" (Id. at 25) and reasoned that "there can be no disparate burden on interstate or foreign competitors" when PPLC has no other competitors in South Portland or within the rest of Maine. Id. at 28. While Judge Woodcock agreed with PPLC regarding the City's motivation and purpose for enacting the Ordinance, the Court disagreed that the City's fear of "the local risks of handling crude oil derived from tar sands" were demonstrative of any discriminatory intent regarding "the fact that the tar sand originated outside Portland and Maine." Id. at 32. Notwithstanding some evidence in the legislative record suggesting that the City intended to design an Ordinance that would withstand judicial scrutiny and address some of its residents' public safety and spillage concerns, the Court found sufficient evidence that the City "considered tar sands to be a dangerous article with greater health and environmental risks than other types of crude oil and intended to alleviate th[ose] risks." 33 & n.6. "That purpose," the Court concluded, "is not equivalent to economic favoritism that the dormant Commerce Clause prohibits." 33

The Court proceeded to apply abalancing test (known as the Piketest) regarding the weight of the local benefits and the burdens on foreign and interstate commerce potentiated by the Ordinance. 35-39. On one side of the scale were residents' sincere concerns with increased hazardous air emissions resulting from the flow reversal project's bulk loading of crude onto tankers—the marine loading from the pipeline on to tankers would yield greater emissions than the unloading activities previously associated with PPLC's piping of crude to Canada. 37-38. PPLC unsuccessfully attempted to argue that those benefits were illusory or were outweighed by the negative impacts to jobs and commercial revenues on the other side of the scale. Id. at 38-39. The City's unrebutted evidence regarding the local aesthetic and redevelopment benefits from the Ordinance and the reality that all the burdens will fall on local Maine companies further convinced the Court not to "second-guess legislative judgment about [the public health and safety benefits'] importance in comparison with related burdens on interstate commerce." 38.

The City has already invested mightily in drafting and defending its Ordinance, but it will have to brace for further costs from PPLC's appeal. The outcome of this appeal may ultimately yield a litmus test for localities, utilities, and energy companies regarding the balance between uniform federal standards, unimpeded interstate commerce, and local health and welfare regulation.

If you have any questions please contact a member of Verrill Dana's Energy Group.

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