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D.C. Circuit Provides Additional Clarity on Federal and State Roles in Natural Gas Pipeline Permitting

Dennis_Jeffrey_COLORBy Jeffery S. Dennis

On Friday, June 23, 2017, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision in a long-running dispute between the developer of an interstate natural gas pipeline project and New York State environmental regulators concerning a federal water quality permit that must be obtained before project construction may begin. Millennium Pipeline Company v. Basil Seggos, et al., D.C. Cir. No. 16-1415 (June 23, 2017).  The decision provides additional clarity regarding the interplay of Federal and State permitting authorities with respect to interstate natural gas pipeline infrastructure, and the role of the courts in adjudicating disputes with State permitting agencies. 

The pipeline project at issue is a proposed 7.8 mile extension of Millennium Pipeline’s existing interstate natural gas pipeline in southern New York. The extension will serve a new natural gas-fired power plant.  To construct the project, Millennium must obtain a “certificate of public convenience and necessity” from the Federal Energy Regulatory Commission (“FERC”) pursuant to Section 7 of the Natural Gas Act (“NGA”), 15 U.S.C. § 717f(c).  The NGA requires that FERC ensure that all proposed interstate natural gas pipeline projects comply with all applicable federal, state, and local regulations, including environmental regulations.  15 U.S.C. § 717b(d).  FERC granted Millennium a certificate of public convenience and necessity, conditioned on Millennium obtaining a Clean Water Act (“CWA”) water-quality certificate pursuant to section 401 of the CWA, 33 U.S.C. § 1341(a)(1), since its project would cross several streams.

The CWA requires that state regulators act “within a reasonable period of time (which shall not exceed one year)” on applications for water-quality certificates; if no action is taken within one year, the water-quality certificate requirement is deemed waived. Id. Millennium first applied for a water-quality certificate from the New York Department of Environmental Conservation (“NYDEC”) (the state agency that administers New York’s CWA program) in November 2015.  Over the next year, NYDEC sought additional information from Millennium on several occasions.  In November 2016, NYDEC informed Millennium that it had “fully responded” to all requests.  NYDEC nonetheless stated that it would “continue to review” the application and had until August 30, 2017 “at a minimum” to approve or deny Millennium’s request.

Seeking to force the NYDEC to act on its application, Millennium filed a petition for review in the D.C. Circuit pursuant section 19(d)(2) of the NGA, a unique provision added by the Energy Policy Act of 2005 that gives the circuit courts of appeal original and exclusive jurisdiction to review an alleged failure to act by a . . . State administrative agency acting pursuant to Federal law to issue, condition, or deny any permit required under Federal Law.” 15 U.S.C. § 717r(d)(2).  Millennium asked the court to exercise its authority under this provision to remand the proceeding back to the NYDEC and “set a reasonable schedule and deadline for the agency to act on remand.”  15 U.S.C. § 717r(d)(3).  NYDEC, in response, asserted that it is only required to act within one year of receiving a complete or valid application, which Millennium had failed to provide.

The court did not reach the merits of these arguments, however, because it concluded that Millennium lacked standing to seek relief under section 19(d)(2) of the NGA. Specifically, the court held that Millennium failed to demonstrate that it has suffered an “injury in fact” as a result of NYDEC’s alleged failure to act on its water-quality certificate application within the one-year deadline established in the CWA, since that statute also deems the water-quality certificate requirement waived if no action is taken within that year. Millennium, slip op. at 6.  As a result, the court found that NYDEC’s failure to act does not stand in the way of Millennium’s project, since “Millennium ultimately needs one permit to begin construction on its pipeline: the certificate of public convenience from FERC.” Id.

The court did not, however, rule on whether NYDEC has in fact waived the water-quality certificate requirement by failing to act within one year. Instead, it placed that question before FERC, stating that Millennium “can go directly to FERC and present evidence of the Department’s waiver.” Id. at 8.  Were FERC to agree that the requirement has been waived, the condition on Millennium’s certificate of public convenience and necessity would be satisfied, removing it as an impediment to moving forward with construction.

The court’s ruling provides additional clarity regarding the interplay of Federal and State permitting authorities with respect to the water-quality certification requirements of the CWA, making it clear that FERC is the primary decision-maker as to whether those requirements have been waived by State inaction. This clarity will give FERC greater certainty as it takes steps to enforce permitting schedules and move proposed natural gas pipeline infrastructure projects forward more quickly. While parties in the proceeding argued that finding a lack of standing here would eviscerate the authority of the court under section 19(d) of the NGA to force State permitting agencies to act, the court noted that not all federal statutes have waiver provisions similar to the CWA, and that its decision has “no effect on situation in which a State’s “sheer inactivity” could actually frustrate the federal permitting process.” Slip op. at 10, citing Dominion Transmission, Inc. v. Summers, 723 F.3d 238 (D.C. Cir. 2013) (granting a petition to review a State permitting agency’s refusal to act on a Clean Air Act permit and remanding with instructions to complete the permitting process within a reasonable timeframe).