The extent to which the federal Interstate Commerce Commission Termination Act (ICCTA) preempts CEQA has been a topic of much scrutiny recently. Currently pending before the California Supreme Court is Friends of the Eel River v. North Coast Railroad Authority (Case No. S222472), which will address whether the ICCTA preempts CEQA review of a state agency’s proprietary acts with respect to a state-owned or funded rail line (which is at issue in both that case and in Town of Atherton v. California High Speed Rail Authority (2014) 228 Cal.App.4th 314). The case has been fully briefed since April 2015 and is awaiting oral argument.

In the meantime, a September 20 decision by the federal Surface Transportation Board (STB) has addressed ICCTA preemption in the context of a proposed crude-by-rail facility. These facilities have garnered much public attention in California and resulted in CEQA challenges to several proposed projects. In this decision, the STB denied Valero Refining Company’s petition, finding that the ICCTA did not preempt the City of Benicia’s decision to deny certification of an environmental impact report (EIR) and deny a conditional use permit (CUP) for a crude-by-rail offloading facility at Valero’s Benicia refinery. The decision provides insight into the federal government’s view of CEQA preemption, which will be of interest to the Supreme Court and the parties to the Friends of the Eel River case, as well as to lead agencies and project proponents contemplating crude-by-rail and other rail-related facilities in California.

Valero’s Benicia refinery receives crude oil by ship from Alaska and foreign sources, and by pipeline from producers in California, but currently does not receive any crude oil by rail. The company proposes to install an off-loading facility to give it access to North American crude oil produced outside California, via rail lines operated by Union Pacific Railroad Company (UPRC). The facility would receive 50-car trains of crude oil twice per day (totaling approximately 70,000 barrels per day), but the operating capacity of the refinery would not change.

In December 2012, Valero submitted an application for the crude-by-rail off-loading facility to the City Planning Commission. The City then prepared an EIR that disclosed potential environmental impacts from proposed UPRC rail operations between the Benicia refinery and California’s borders with neighboring states. However, the EIR did not include mitigation for those impacts, because City staff determined that such mitigation would be preempted by the ICCTA. In February 2016, the Planning Commission denied certification of the EIR and denied a CUP for the project, based in part on the impacts from the proposed UPRC rail operations.

Valero appealed the Planning Commission decision to the City Council, but the Council voted to defer a decision on the appeal until after Valero could raise the issue of preemption with the STB. In May 2016, Valero filed its petition, arguing that the City had engaged in “impermissible indirect rail regulation” and that its refusal to certify the EIR and issue the CUP was subject to federal preemption under the ICCTA.

In denying Valero’s petition, the STB reaffirmed that section 10501(b) of the ICCTA “bars the application of most state and local laws to railroad operations that are subject to the Board’s jurisdiction.” However, because that jurisdiction covers “transportation by rail carrier,” to qualify for federal preemption the activities at issue must be “transportation” and must be performed by, or under the auspices of, a “rail carrier.” Although those terms are defined broadly in the ICCTA, the STB found no preemption in this instance, because the City’s decision does not attempt to regulate transportation by a rail carrier: “The Board’s jurisdiction extends to rail-related activities that take place at transloading (or, as here, off-loading) facilities if the activities are performed by a rail carrier, the rail carrier holds out its own service through a third party that acts as the rail carrier’s agent, or the rail carrier exerts control over the third party’s operations. The record presented to the Board in this case, however, does not demonstrate that Valero is a rail carrier or that it is performing transportation-related activities on behalf of UP or any other rail carrier at its off-loading facility.” Moreover, Valero did not demonstrate that the City’s decisions unreasonably interfered with UPRC’s common-carrier operations.

The STB concluded its decision by providing guidance requested by the City regarding two issues: (1) whether the ICCTA preempts the City from imposing mitigation measures or conditions of approval that would directly regulate the activities of UPRC; and (2) whether the City could impose mitigation measures or conditions of approval on Valero addressing indirect project impacts caused by UPRC’s delivery of crude by rail. The STB responded that any attempt to regulate UPRC’s rail operations on its lines would be categorically preempted, but regulation is permissible to the extent it does not unreasonably interfere with rail transportation. As such, a local government may use its police powers to protect public health and safety, so long as its actions do not discriminate against rail carriers, unreasonably burden interstate commerce, or have the effect of foreclosing or unduly restricting the rail carrier’s ability to conduct its operations. For these reasons, “[i]f the offloading facility were eventually to be constructed but the EIR or the land use permit, or both, included mitigation conditions unreasonably interfering with [UPRC’s] future operations to the facility, any attempt to enforce such mitigation measures would be preempted by [the ICCTA].”

The matter now returns to the Benicia City Council for hearing of Valero’s appeal in light of the STB’s guidance. Should this project or similar projects in other jurisdictions be approved, any conditions of approval or mitigation measures will need to be carefully crafted so as not to regulate or unreasonably interfere with rail transportation. Moreover, project proponents will still have access to the STB and the courts to challenge specific conditions or measures on ICCTA preemption grounds. Where the line is drawn by the STB and the courts is likely to be decided on a project-by-project basis, although the decision in Friends of the Eel River may provide some broadly applicable guidance.