Over the past several years, state and local governments have become more aggressive regulators of free-enterprise activity. Some of those states and municipalities have taken action in areas that either federal law or the U.S. Constitution reserve for uniform federal regulation.

For instance, states like Washington and California have either adopted or are pursuing their own “net neutrality” rules after the Federal Communications Commission repealed a 2015 rule. Scores of states, cities, and counties have sued to impose controls on federally approved prescription pain medications that would be different from those required by the Food and Drug Administration. And mayors, county supervisors, and state attorneys general are racing ahead of the federal government with lawsuits aimed at regulating the global concern of climate change.

Another example of what we’ll call extreme federalism has been percolating in the Pacific Northwest for over five years and is now being contested in federal court.


Port of Longview, WA

Utah-based Lighthouse Resources alleges that three Washington government officials, including Governor Jay Inslee, ran afoul of federal law and the Constitution’s Commerce Clause when blocking approval of a water-port terminal in Longview, Washington. BNSF Railway Company filed a motion to intervene as a plaintiff, as well as a proposed complaint, on February 27.

Lighthouse planned to build a large export facility at Millennium Bulk Terminal (MBT) on the underutilized “brownfield” site of a 1940s aluminum smelter. By rail, Lighthouse intended to receive and ship commodities from Lighthouse-owned sites in Montana and Wyoming to clients in Asia.

Although it had to secure at least 24 state and federal permits for the MBT project, Lighthouse had good reason for optimism. Regulators had previously approved eight new daily roundtrip passenger-train trips on the rails near the port, signed off on a grain export terminal in 2011, and were actually seeking expedited approval for development of a nearby terminal for export of such commodities as bio-diesel, crude oil, and methanol.

The problem for Lighthouse, however, is that the commodity it wishes to export at MBT is the bane of all environmental activists’ existence: coal.

The facts laid out in Lighthouse’s complaint, as well as BNSF’s proposed complaint, make a strong case for the legal and constitutional claims they advance. Lighthouse’s complaint asserts that alternative-fuels proponents count key Washington decision makers, including the governor, as committed allies. After his election in 2012, Governor Inslee stressed that he and other Washingtonians could be climate-solution leaders by, among other actions, preventing coal exports.

In 2014, two years into evaluating MBT’s environmental impact, the Washington Department of Ecology (WDE) decided to broaden the review’s scope to include rail transportation impacts outside the project’s area and the transported commodity’s use outside the U.S. As WDE’s director explained in a letter to a Washington State Senator, “there is no speculation as to the end use of the coal; it will be combusted for thermal power.”

The U.S. Army Corps of Engineers, which had been working with WDE on a joint federal/state impact statement, balked at expanding the scope of review. It also concluded that WDE’s broader scope encroached on areas where “other Federal agencies may have regulatory control.”

WDE’s draft impact statement proposed that Lighthouse purchase carbon offsets to mitigate 50% of the greenhouse gas emissions from coal shipped to and from MBT regardless of where the coal was consumed. Even though comments on the draft from Members of Congress, national business associations, and rail transportation unions all condemned the unprecedented mitigation mandate, the final state environmental impact statement retained it.

WDE also denied Lighthouse’s request for a water quality certification that would allow the company to pursue a needed federal Clean Water Act fill-and-dredge permit. The agency did so a mere three days after Lighthouse submitted 240 pages of information that WDE had requested, and the agency’s rejection was “with prejudice,” so the company could not refile its request.

Incredibly, WDE denied certification based not on water quality concerns, but on air-emission and other concerns related to the rail transportation of coal. Ironically (given its low view of preemption), WDE stressed that those environmental effects could not be mitigated because railroad-related effects are under federal, not state, jurisdictional control.

Lighthouse’s complaint alleges that the defendants “have no intention of allowing the Terminal to be constructed.” The complaint cites an October 23, 2017 letter from WDE stating that the environmental effects that led it to deny a water quality certification for MBT “likely preclude [WDE] from approving” any permit applications. The agency’s letter ominously suggested that Lighthouse contact the state attorney general with any questions.

As noted above, at least one of the defendants seems cognizant of Washington’s usurpation of federal authority over the rails. The ICC Termination Act contains an express preemption clause, 49 U.S.C. ยง 10501(b), which reflects Congress’s intent that railroad operations be regulated solely at the federal level. Washington’s permitting decisions dictate which commodities can and cannot be shipped via interstate rail. Federal law expressly preempts such state preclearance.

Washington’s actions and inaction on the terminal violate the Commerce Clause, which limit states’ authority to regulate foreign and interstate commerce. Washington has essentially imposed a coal-export embargo, preventing the sale and shipping of coal to foreign entities willing to purchase it. That outcome directly contradicts federal policy declarations, such as the 2017 National Security Strategy, which stated that “[t]he United States will promote exports of our energy resources.” The state’s actions undermine federal officials’ implementation of that goal and impedes the federal government’s ability to “speak with one voice” on foreign policy.

WDE’s decision to expand its environmental impact review beyond Washington’s own borders further discriminates against the interstate shipping of coal. That decision, and other unreasonable actions on the terminal permits, excessively burden interstate commerce when compared to the benefits for Washington. The state’s impact statement identified no water quality concerns, and any other environmental issues it identified are minimal compared to the economic benefits that Washington’s citizens are being denied.

The U.S. District Court for the Western District of Washington is currently considering BNSF’s motion to intervene, as well as intervention motions filed by environmental activists to join the defendants. The defendants moved to dismiss the suit on February 21, and the court has ordered Lighthouse to reply by April 12.

Also published by Forbes.com on WLF’s contributor page.