FERC Concludes New York Waived Right to Issue Section 401

Earlier today, the Federal Energy Regulatory Commission (FERC), in a precedent setting decision, determined that the New York State Department of Environmental Conservation (NYSDEC) had waived its right to issue a water quality certificate (WQC) with respect to Millennium Pipeline's Valley Lateral project by not ruling on Millennium's request within one-year after Millennium first applied for the WQC. This decision is significant for Millennium and the CPV Power Plant, but is also positive news for the industry generally, as it will likely encourage all states to assure that a decision on an application for a WQC is issued within one-year after the application is received. In the case of National Fuel's Northern Access 2016 Project and Williams' Constitution Pipeline, it remains to be seen how the developers will use this decision, which is based on different factual circumstances, to advance their own projects.

Background of the Case

Millennium filed its application for a WQC on November 23, 2015. The NYSDEC issued notices of incomplete applications to Millennium on December 7, 2015 and June 17, 2016. Millennium's last response to the second incomplete application notice was provided on August 31, 2016.  When the NYSDEC failed to act by November 23, 2016, Millennium brought suit in the U.S. Circuit Court of Appeals for the District of Columbia (DC Circuit), asking the court to find that the NYSDEC had waived its right to issue a WQC by not acting within one-year after receiving Millennium's application. In a decision issued on June 23, 2017, the DC Circuit refused to grant Millennium's request because it ruled that FERC was the entity with the authority to make that waiver determination.

On July 21, 2017, Millennium filed a request with FERC to commence construction on the basis that it had all required permits other than the WQC, and that the NYSDEC had waived its right to issue a WQC, and that, consequently, a WQC was not needed. NYSDEC responded to that request, asserting that it had until at least August 31, 2017 to rule on Millennium's request because Millennium's application was not complete until its final submission of information on August 31, 2016. On August 30, the NYSDEC issued a decision in which it "deemed" Millennium's request denied on the basis that FERC's analysis of downstream greenhouse gas effects in FERC's environmental assessment was inadequate.

In the order issued today, FERC determined that the plain meaning of Section 401 of the Clean Water Act, which requires state agencies to rule within one-year after "receipt" of the application for a WQC, should be used to determine whether a waiver has occurred, and that in Millennium's case, the NYSDEC's failure to act on Millennium's application by November 23, 2016 meant that Millennium no longer needed a WQC.

Impact of the Decision

As we explained in an earlier customer note, the NYSDEC's decision to deny Millennium a WQC on non-substantive grounds opened the door for a decision like this one by FERC. As we stated in that note, we believe that if FERC were to read the CWA as setting a clear one-year time period from the receipt of the application, that such "a precedent-setting decision would help assure that states diligently review WQC applications in the future." In fact, FERC essentially acknowledges this impact in its order by pointing out that the standard it adopts in the order "does not leave a state water quality certifying agency without remedy. If a state agency concludes that a certification application does not meet CWA requirements, it can deny the application."  

This decision may have an impact for cases currently pending before state agencies in which the application was received less than one-year ago, as the state agencies will certainly have an incentive to issue their decision before the one-year period expires. For cases currently pending before state agencies where the application was made more than one-year ago, this order could cause those agencies to seek a voluntary extension from the applicant or, perhaps, issue a decision denying the application before FERC is asked to make a waiver determination. Certainly, FERC's order today creates some leverage for the applicant in all of these cases to obtain a prompt decision.

The impact of FERC's order on other applicants, including National Fuel's Northern Access Project and Williams' Constitution Pipeline, is less obvious. As we have reported previously, each of these two cases present fact patterns that are more complicated than Millennium's circumstances.

In National Fuel's case, the NYSDEC ultimately denied the permit on substantive grounds, although it acted more than one-year after the application was received. However, the NYSDEC denial did come within an extension of time agreed to by National Fuel -- but in granting the extension of time, National Fuel had reserved its right to assert a waiver claim. In fact, on September 12, 2017, National Fuel filed a request with FERC asking FERC to rule on its request for a waiver found in a number of prior pleadings pending before FERC. As stated by National Fuel, the DC Circuit has laid the key question of NYSDEC's waiver at the Commission's feet and National Fuel asked the Commission to "promptly and favorably remove that obstruction through consideration of pending National Fuel pleadings."

Constitution's position is less clear with respect to this decision. Constitution appealed the NYSDEC's decision on its WQC as an arbitrary and capricious "denial" of the certificate, and the U.S. Court of Appeals for the Second Circuit recently denied Constitution's appeal. Constitution has sought rehearing of its appeal by the entire court. However, the NYSDEC's actual "decision" was based on the fact that it did not have sufficient information to make a determination on the project's impact on water quality. It is at least conceivable that Constitution could seek a ruling by FERC that the NYSDEC's decision is not a substantive ruling on the merits, but merely a request for additional information, and that by not processing the application in a prompt manner, the NYSDEC has waived it right to rule on the WQC.

Finality of the Decision

The DC Circuit's decision which states that FERC should be asked whether a waiver has occurred makes it clear that FERC was not the "final arbiter" of this decision. The court noted in its decision that if FERC refused to find a waiver in Millennium's circumstances, then Millennium "could immediately appeal any adverse FERC decision on the waiver question to this Court under section 19(b) of the Natural Gas Act, which affords judicial review to parties aggrieved by FERC's orders." Similarly, if the NYSDEC disagreed with a FERC finding that it had waived the right to issue a WQC, then the NYSDEC's "recourse would be to seek review in this Court pursuant to section 19(b). See 15 U.S.C. § 717r(b). Otherwise, the Department could no longer block Millennium's construction." So the NYSDEC could choose to appeal this decision, but unless it does so, it may not otherwise be able to block construction, and, even if it does appeal, it may not be able to present the evidence required to obtain a stay from the DC Circuit.