Breaking: New York Issues a Section 401 Water Quality Certificate
The first indication that it may be possible to permit a pipeline project in New York State just occurred. Millennium Pipeline received all required permits from the New York State Department of Environmental Conservation (NYSDEC) -- including the elusive Section 401 Water Quality Certificate (WQC) -- for its Eastern System Upgrade project. This is a surprising development, considering that just last week, the NYSDEC denied Millennium its WQC for a much smaller project, its Valley Lateral project , which will connect to a 680 MW combined-cycle gas generator. The winners may be the newly reconstituted FERC, Millennium, and, depending upon the outcome in the Second Circuit, perhaps National Fuel's Northern Access 2016 project. The losers may be Constitution and the NYSDEC.
The Decisions
The NYSDEC denied the WQC for the Valley Lateral project because it found that, under the D.C. Circuit's recent ruling concerning the Sabal Trail project , FERC should have conducted a downstream greenhouse gas analysis with regard to the burning of the gas at the end of the lateral. One reason that this reasoning may be faulty is that the downstream greenhouse gas analysis ordered by the D.C. Circuit is to allow the public to comment on the global warming effects of the project, which appears to be unrelated to the NYSDEC's role regarding the issuance of a WQC for the project.
With respect to the Eastern System Upgrade, we previously explained in our Sabal Trail report that the Eastern System Upgrade environmental assessment (EA) contains a robust downstream greenhouse gas analysis similar to that found in the environmental impact statement for the NEXUS project, and for which FERC issued a certificate following the Sabal Trail decision. Perhaps, then, the NYSDEC was hesitant to use the same ground for denying the EA for the Eastern System Upgrade, as it did for the Valley Lateral. For other projects, however, the importance of this decision is that it appears that NYSDEC is not "vetoing" all gas projects as some in the industry and media have speculated.
Potential Winners: Millennium and National Fuel
As we discussed in prior analyses, the issuance of a WQC by the states is causing a lengthening of the time it takes from the issuance of a FERC certificate to the commencement of construction. Because the NYSDEC denial in the Valley Lateral case is not based on the water quality standards in the state, FERC could move to grant Millennium's pending request for a Notice to Proceed with construction for the Valley Lateral project. Such a precedent-setting decision would help assure that states diligently review WQC applications in the future. If FERC takes this step, then Millennium would also be a winner because it would have received the WQC for its Eastern System Upgrade project and would be able to start construction on the Valley Lateral.
Now that the Second Circuit final briefings in the National Fuel appeal involving its Northern Access 2016 project have been filed, the likely next step will be an oral argument sometime this Fall. If the court accepts National Fuel's interpretation, the fact that a WQC was issued to Millennium may bolster National Fuel's argument that the NYSDEC decision in its case is arbitrary and capricious. Additionally, the briefs suggest that, if the Second Circuit were to vacate NYSDEC's denial, then National Fuel may immediately seek a determination from FERC that the NYSDEC had waived it right to issue a WQC. If FERC has already set a precedent for such a finding in the Valley Lateral project, then that can only help National Fuel's chances should the Second Circuit vacate the NYSDEC's denial.
Potential Losers: NYSDEC and Constitution
The biggest potential loser in all of this may be the NYSDEC, because if FERC acts in the manner described above, there could be two projects (Valley Lateral and National Fuel's Northern Access) that will be constructed in New York without any water quality oversight by the NYSDEC.
Constitution may be the other potential loser. The NYSDEC denied Constitution's WQC on the grounds that Constitution failed to provide it adequate information to allow the NYSDEC to make a determination. The Second Circuit recently upheld the NYSDEC's decision. As such, the fact that the NYSDEC appears willing to issue a WQC when presented with sufficient information to make a determination could be an adverse precedent for Constitution should it seek further judicial review of the Second Circuit's decision.
As always, please reach out if you have questions or would like to discuss further.