SOUTH PORTLAND — City officials are bracing for higher-than-usual legal fees in the year ahead as lawyers they’ve hired continue to contend with major players in the petroleum industry.

But some city councilors are concerned that setting aside an additional $250,000 for contracted legal services in the fiscal year starting July 1 won’t cover legal fees that some fear could grow to $2 million over time.

An ongoing federal lawsuit by the Portland Pipe Line Corp. challenging the city’s Clear Skies ordinance could cost taxpayers as much as $1 million by some estimates if the city loses and is forced to pay the pipeline’s legal fees as well.

The city faces a similar scenario if Pan Am Railways decides to challenge a fire code amendment, approved by the council in a first reading last week, which would limit where the railroad company could build a liquefied petroleum gas depot at Rigby Yard.

“I’m very concerned and I’ve been vocal about it,” said Councilor Claude Morgan. “I don’t think $2 million is a stretch at all. Several of us are working under the assumption that a lawsuit from Pan Am would be as robust as the pipeline.”

After the oil pipeline company filed its lawsuit in February 2015, the council increased the budget for contracted legal services in fiscal year 2015-16 from $135,000 to $385,000. It also set aside $200,000 in reserve funds specifically to defend the Clear Skies ordinance, about $140,000 of which has been spent so far.

In the fiscal 2016-17 municipal budget now being developed, the council is looking to allocate $185,000 for contracted legal services and set aside $200,000 in reserve funds, which would reduce the impact on the tax rate.

The city also has received $16,000 in donations to its Clear Skies Legal Defense Fund, City Manager Jim Gailey said.

PIPELINE LAWSUIT MOVES FORWARD

Last month, a federal judge decided that the pipeline’s lawsuit, which challenges the city’s ban on exporting domestic oil through the city, should move forward. The pipeline, which has carried foreign crude to Canada for decades, has essentially shut down in recent months due to lack of demand.

Since the pipeline company filed its lawsuit, the city has paid its local attorney, Sally Daggett of Jansen Baird Gardner & Henry in Portland, $24,987 in fees related to the pipeline. It also paid her $4,066 in fees related to the fire code amendment and NGL Energy Partners’ proposal to build a propane depot at Rigby Yard, said Gailey.

During the same period, the city has paid Foley Hoag, a prominent Boston law firm, $149,778 in fees related to the pipeline lawsuit and $7,919 in fees related to the propane issue, Gailey said.

The city has spent a total of $186,975 in legal fees on the pipeline lawsuit and the propane issue since February 2015, Gailey said. Litigation of the lawsuit could continue for months or years.

NGL, a Tulsa, Oklahoma, company that operates 20 propane terminals across the country, withdrew its proposal March 18 after struggling for more than a year to get it approved despite strong neighborhood opposition. The company, which includes Brunswick-based Downeast Energy, is looking for another site to move its current depot on Commercial Street in Portland, so the state can build a cold storage facility at that location.

Mayor Tom Blake said he’s not worried about escalating legal costs because he believes the council is monitoring both the pipeline and propane issues and can change course to protect taxpayers and preserve city resources.

“I guess I’m not really too concerned,” Blake said. “We’ve spent a fair amount, no question about it, but it’s not (as much as) people have been saying lately.”

Blake said the city is financially healthy but should be prepared for a worst-case scenario if the pipeline company wins its lawsuit or Pan Am challenges the fire code amendment.

“The cost of health and safety is not cheap,” Blake said. “This is what I consider a necessary expenditure.”

POTENTIAL CHALLENGE OVER PRE-EMPTION

A divided council voted 4-3 last week to approve a fire code amendment that would establish a 1,257-foot buffer between important public facilities and proposed propane distribution plants.

It’s scheduled for a second reading and final approval on April 4, which means it would take effect April 24, Gailey said.

Blake was among the councilors who supported the measure despite warnings that it could prompt a lawsuit from Pan Am; Morgan was among the councilors who opposed it.

While the buffer requirement would have blocked NGL’s proposal for Rigby Yard because of its proximity to the Cash Corner Fire Station, it appears that a large, outer section of the 245-acre rail yard remains open to potential development of a propane depot.

Many fear Pan Am might challenge the amendment because it threatens federal pre-emption rights that allow railroads to ignore most state and local laws across the country. However, the amendment was drafted to accommodate federal laws that appear to allow objective local regulations that protect public health and safety, such as fire codes.

Whether Pan Am plans to file a lawsuit or challenge the amendment before the federal Surface Transportation Board is unknown. A request for comment from company officials on Monday wasn’t answered immediately.

Morgan agrees the city should be prepared for the worst, which might be the case if it loses legal challenges by either the pipeline company or Pan Am. In each case, the city would have to cover the company’s legal fees for challenging its constitutional right to free commerce, Morgan said.

“This could be an incredibly expensive exercise, wherein we get nowhere,” Morgan said. “And think of what $2 million could buy in our school system.”

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