Constitution’s Baaack -- Litigation Lessons for ACP/MVP and Others
The saga of Constitution resumed earlier this week when all sides weighed in at FERC about whether FERC should reconsider its prior determination that the New York State Department of Environmental Conservation (NYSDEC) had not waived its right to act on the Clean Water Act, Section 401 Water Quality Certificate (WQC) for the project. Also, earlier this week, FERC denied rehearing in a related case, National Fuel Gas Supply’s Northern Access 2016 Project. It is debatable, though, whether the D.C. Circuit’s decision in Hoopa Valley v. FERC, which was relied upon in FERC’s Northern Access decision, applies to Constitution.
Today, we dive into the various positions of the parties in the Constitution proceeding, with an eye to how the ultimate decision may impact that project, as well as the rules of the road for projects going forward. In fact, Constitution’s decision to litigate may prove to be a cautionary tale for Atlantic Coast Pipeline and Mountain Valley Pipeline, as a major shipper/part owner of ACP begins to publicly discuss a “Plan B” and MVP confirms it will be in-service by the end of this year. We then assess pending litigation for ACP and MVP, including one option outside of litigation that both projects might want to consider.
Litigation Duration Soon to Overtake Permitting
The history of the Constitution proceeding shows the risks that arise from delegating federally required permits to the states, as well as the risks of a litigation focused strategy, as the litigation phase has taken almost as long as the project approval phase did. To bring everyone up to date, let’s look at the timeline in two phases, project approval timeline and litigation timeline.
Why Hoopa Valley Matters
At the request of FERC, the D.C. Circuit held the Constitution appeal in abeyance while it decided the Hoopa Valley case because that case was addressing a key question: whether the withdrawal and resubmittal of a WQC application restarts a one-year review period for the state action set forth in the Clean Water Act. The theory behind the delay was that if the DC Circuit decided that the withdrawal and resubmittal did restart the time clock, that decision would lead the court to deny Constitution’s appeal. The converse also seemed to be true --that if the court found that a withdrawal and resubmittal does not restart that one-year time clock, -- then FERC would reverse its prior decision and find that the NYSDEC had waived the right to issue a WQC.
The DC Circuit’s decision in Hoopa Valley, however, is not so clear cut when trying to apply it to the facts in Constitution. As Constitution noted the DC Circuit held that “the withdrawal-and-resubmission of water quality certification requests does not trigger new statutory periods of review.” However, the Hoopa Valley court also expressly stated that it was not determining “how different a request must be to constitute a ‘new request’ such that it restarts the one-year clock.”
The distance between those two statements leaves plenty of room for disagreement over how directly applicable the Hoopa Valley case is to the facts in Constitution. The NYSDEC, supported by environmental groups, made every effort to distinguish Hoopa Valley from Constitution.
In our view, there are some key differences between Constitution and Hoopa Valley that FERC will need to carefully evaluate:
- Both the applicant and the State in Hoopa Valley benefited by continuing to delay a decision on the WQC. But in the case of Constitution, the applicant had every incentive to get a decision as quickly as possible.
- The “scheme” between the state and the applicant in Hoopa Valley relied on a written agreement to continually withdraw and resubmit the application so no final decision would ever be rendered that could be challenged in court.
- The “scheme” went on for ten years. In Constitution, any such withdrawal and resubmittal “scheme” has not gone on as long.
- The state in Hoopa Valley never denied the application as NYSDEC ultimately did and the applicant never appealed the substance of that denial as Constitution did.
On Tuesday of this week, FERC denied motions for rehearing in a similar case involving National Fuel Gas Supply’s Northern Access 2016 Project. In that case, FERC had found that the NYSDEC had waived its right to issue a WQC by not acting within one year after receiving the application, even though National Fuel and the NYSDEC had stipulated to a later receipt date that made the ultimate denial fall within one year. FERC viewed Hoopa Valley as supportive of its bright line one-year standard that could not be altered by an agreement of the parties. The decision in National Fuel makes it unlikely that FERC will find distinctions three and four between Hoopa Valley and Constitution convincing, but the decision by FERC in Northern Access does not address the first two distinctions directly.
Careful What You Wish For
In its pleading to FERC, Constitution requests a decision within 45 days after the close of supplemental pleadings on May 1, 2019 and confirms that the pipeline remains fully contracted with long-term commitments from established natural gas producers currently operating in Pennsylvania. It is unclear whether this aspiration will be realized.
The best case scenario for Constitution would be that FERC reverses its prior decision within 45 days and neither FERC nor the DC Circuit issues a stay while the NYSDEC and environmental groups likely challenge the finding that NYSDEC waived its right to issue a WQC. This would presumably allow the project to move forward almost immediately. This best case does not seem highly likely at this point, however.
The worst case scenario, though, is that a 2-2 FERC is split on whether to reverse its prior decision based on Hoopa Valley and does nothing with the case until a five member commission is restored. Given there is no current nominee for the fifth commissioner, this could mean a three to six month delay for any decision. It is also conceivable that following a decision that the NYSDEC had waived its right to issue a WQC, the project could try to start construction and have the NYSDEC appeal the order authorizing construction to the Second Circuit, which may have an interest in upholding its prior decision that found the denial of the WQC to be a proper use of state power.
Between these two extremes, there are a myriad of possible outcomes, but it is our view that a final decision authorizing the start of construction is likely more than a year away.
Lessons for ACP/MVP
While Constitution is its own case study in the vagaries of permitting, litigation and policy risks, other projects, even outside New York, could learn from these developments; that is, almost any option outside of litigation is typically preferred from a viability and timing standpoint. ACP has indicated that it intends to ask the U.S. Supreme Court to review the Fourth Circuit’s decision that voided the federal government’s authorization for the project to cross the Appalachian Trail. Even ACP considers that it would be a success for that process to play out by June 2020.
MVP faces a similar issue. Although it has not been challenged in the courts, its permit to cross through the national forest at the point where it crosses the Appalachian Trail is being revised as well and may be challenged. Also, both projects need to restore the permit needed to cross wetlands and streams throughout the project, but most particularly in West Virginia. Both projects appear to be waiting on a revised programmatic WQC that West Virginia issued for a public comment period that closed on March 4. West Virginia has yet to issue that revised programmatic WQC.
Relatedly, the NYSDEC, in the Constitution case, noted that at any point since April 22, 2016, Constitution was free to reapply for a WQC from the state and had chosen not to do so. The NYSDEC’s comment was a bit of a canard in that doing so would only allow New York to come up with a more defensible substantive denial of the permit. Nonetheless, by analogy, in West Virginia, ACP and MVP have a state government that appears willing to permit both projects.
Given the long path that Constitution has traveled along the litigation road, ACP and MVP may still want to consider a parallel path: applying for a new project specific WQC from West Virginia rather than relying solely on the programmatic WQC being upheld. After all, the only permits the Fourth Circuit has upheld for both projects were the project specific WQCs granted by the State of Virginia. That may be a path worth pursuing.
Insights Coming Soon
- MLP ADIT balances
- A look at O&M spending, maintenance, and Capex