On July 24, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published an invitation to comment on a preemption application submitted by the States of North Dakota and Montana.  The States’ application asks PHMSA to override vapor pressure limits for crude by rail imposed by the State of Washington.  New Washington law, which became effective on July 28, 2019, prohibits loading or unloading crude oil from a rail car unless the vapor pressure is lower than nine pounds per square inch.  The law also requires facilities receiving crude by rail to provide “advance notice” of the “type” and “vapor pressure” of the crude.  According to North Dakota and Montana, the new law effectively targets Bakken crude—thought by some to be more volatile—and should be preempted by the Hazardous Materials Transportation Act, which PHMSA administers.

North Dakota and Montana make two types of preemption argument.  First, they claim that the Washington requirements are “not substantively the same” as PHMSA’s requirements; the Hazardous Materials Transportation Act expressly preempts state laws to that effect.  See 49 U.S.C. § 5125(b).  Second, they claim that the Washington law poses an “obstacle” to carrying out PHMSA’s regulations for crude by rail.  The Hazardous Materials Transportation Act also expressly preempts any state laws that create such obstacles, see 49 U.S.C. § 5125(a)(2), but it borrows this concept of “obstacle” or “conflict” preemption from the Supreme Court’s application of the Supremacy Clause of the U.S. Constitution.  U.S. Const. art. VI, cl. 2.  Like many federal statutes, the Hazardous Materials Transportation’s preemption provision reduces the uncertainty and costs created by differences in state rules.  See, e.g., Geier v. Am. Honda Motor Co., 529 U.S. 861, 873 (2000) (explaining that the National Traffic and Motor Vehicle Safety Act “suggests an intent to avoid the conflict, uncertainty, cost, and occasional risk to safety itself that too many different safety-standard cooks might otherwise create”).

This is not the first time that vapor pressure limits have come to PHMSA’s attention.  In 2015, the State of New York petitioned the agency to enact a federal limit of nine pounds per square inch for all crude by rail.  PHMSA accepted preliminary comments on the concept of a national vapor pressure limit in early 2017, but it effectively tabled that plan after receiving significant technical and legal criticism (here and here) of the proposal.  As industry explained then, and as Montana and North Dakota argue now, these sort of state limits might entail costly pretreatment at or near the wellhead, and the petition did not seem to address the problem of how or where to transport light ends that exceed the vapor pressure limit.  PHMSA also received significant criticism of the assumed link between vapor pressure and the risk of ignition or explosion in case of an accident.

The Bakken accounts for the vast majority of crude moved by rail in Washington (almost 16 million barrels in the first quarter of 2019), and roughly as much crude moves by rail there as by pipeline (which generally comes from Canada).  PHMSA’s decision will likely have implications beyond the state of Washington.  Four other states—California, Illinois, Maine, and Maryland—joined Washington and New York in supporting the 2015 petition for federal vapor pressure limits.  These states, and perhaps others, might pass similar legislation if PHMSA decides against preemption.  Oregon, for instance, has also passed recent legislation imposing fees and planning requirements on crude by rail carriers.  For shippers, refiners, and producers, a patchwork of state regulation on crude by rail might prove just as onerous as the national limit declined by PHSMA.

Comments on the preemption application are due August 23, 2019, with rebuttal comments due on September 23, 2019.