How Will the Second Circuit's 401 Ruling Impact Pipeline Projects?
The natural gas pipeline industry received welcome news earlier this week when the U.S. Court of Appeals for the Second Circuit reviewing Millennium Pipeline's Valley Lateral Project upheld FERC's bright-line test that gives a state exactly one year from the receipt of an application for a water quality certificate (WQC) under the Clean Water Act (CWA) to take action on that application. The decision contains language that could be considered a setback for some pending projects, such as Constitution Pipeline, Northern Access 2016, and PennEast, but which may be welcome precedent for projects nearing the one-year deadline, such as the Spire STL project.
The court's opinion does not resolve a number of questions that may impact those still seeking a WQC, or planning future projects. In particular, the opinion implies that applicants can extend the time period by their actions and that the states can extend the time period by denying an application without prejudice. While the decision defines when the one-year time period begins, the decision does not resolve whether an appeal of such a denial would go to FERC or the courts for final review. Therefore, future project applicants should: (1) ensure that they file complete WQC applications at least one year before construction is to begin; (2) be careful about their own actions that could extend the one-year period; and (3) closely monitor the actions taken by the states.
Millennium's Review
When FERC issues a certificate of public convenience and necessity for a pipeline project, the certificate is conditional. One key condition that must be satisfied before the pipeline can begin construction is to provide FERC with evidence that it has "received all applicable authorizations required under federal law (or evidence of waiver thereof)." One of the key authorizations typically required is a WQC issued by the states through which the pipeline runs, showing that the pipeline will comply with the states' water quality standards under Section 401 of the CWA.
For its Valley Lateral Project, Millennium submitted an application for a WQC to the New York State Department of Environmental Conservation (NYSDEC) in November of 2015. The NYSDEC denied the application in August 2017. In September 2017, FERC determined that because the NYSDEC had not acted by November 2016, it had waived its right to issue the certificate, and also determined that the one-year deadline by which the state agency must act is measured from the date the application is received by the state agency. NYSDEC appealed to the Second Circuit, challenging both FERC's authority to interpret the one-year deadline and FERC's determination on the facts in the Millennium case.
On Monday of this week, the Second Circuit, while not granting any deference to FERC's reading of the statute, came to the same conclusion as FERC. The Second Circuit found that the "plain language of Section 401 outlines a bright-line rule" measured from the receipt of a request for a WQC. In rebutting the arguments made by the NYSDEC, the court found that the time period does not start after the receipt of a "complete" application, and indicated that blurring the bright-line rule would allow state agencies to request supplemental information indefinitely and thereby frustrate the purpose of the one-year limit.
Impact on Pending Appeals of NYSDEC Denials
As we have analyzed previously, but most recently in Impact of FERC Denying Constitution's Petition, there are two major projects, Constitution Pipeline and National Fuel's Northern Access 2016 Project, for which the NYSDEC has previously denied a WQC. While rebutting the NYSDEC's argument that the court's bright-line standard would discourage cooperation or allow the applicant to game the process, the Second Circuit offered its view in a manner that could be adverse to both of these projects.
The court referenced the Constitution case as evidence that the bright-line test would not prohibit cooperation, explaining, as in the Constitution case, that the state agency could request the applicant to withdraw and resubmit its application, and thereby restart the one-year review period. Such voluntary actions could also apply to National Fuel, which had voluntarily stipulated to an agreed receipt date for its application, after which the NYSDEC acted within one year to deny the application.
Currently, both of these projects are in various stages of appeal before FERC and the courts. In particular, National Fuel has asked FERC to find that the NYSDEC had waived its right to issue a WQC and has also appealed the NYSDEC's denial to the Second Circuit. Similarly, Constitution has asked FERC to reconsider its prior decision that, under FERC's bright-line rule, the NYSDEC had not waived its right to issue the WQC. Constitution has also appealed the NYSDEC's denial of the WQC to the U.S. Supreme Court.
Rules of the Road for Pending and Future Projects
The Second Circuit also addressed in its opinion how it thought the bright-line test would play out in future cases, with regard to both the applicant's and the state's behavior. The court did not think its bright-line test would encourage the filing of incomplete applications by the applicant because it concluded that, if a state deems an application incomplete, it can simply deny the application without prejudice, which the court believed would constitute "acting" on the request, as required by the statute.
A key pending case that may be impacted by this decision is the PennEast project, in which the state of New Jersey, most likely influenced by the questioning by the court in the Millennium oral argument, followed the process outlined by the court and recently denied without prejudice PennEast's application for a combined WQC and Section 404 permit. Because the New Jersey permit involves a Section 404 permit in addition to a WQC, it may not be subject to the one-year time deadline, but New Jersey seems to be carefully protecting itself from any finding of a waiver.
A second pending project, Spire STL Pipeline, appears to be one that could benefit from the Second Circuit's decision, in that Spire submitted its two WQC applications in 2017-- in Illinois on January 1, 2017, and in Missouri on April 1, 2017 -- but has yet to receive either permit. Therefore, absent some voluntary action by the applicant, one state may already have waived its right to issue a WQC, and the other state may soon be deemed to have waived its right.
Going forward, it would seem that the bright-line standard will encourage project proponents to file a complete application at least one year prior to the date they intend to start construction. Provided that the application is complete enough to validly withstand a decision to deny the permit without prejudice -- a decision that remains highly subjective and resides initially with the state agency -- the filing of an application in that time frame would seem to be adequate to ensure the proponent of a timely action to either deny or approve, with appropriate conditions, the WQC.