Jeopardy For ACP, NESE, Nexus and LNG Exports
During the past weeks, there were oral arguments in two federal appeals courts regarding Dominion’s Atlantic Coast Pipeline (ACP) and DTE’s and Enbridge’s Nexus project, which has been flowing gas since being placed in service last November. In addition, this week we saw yet another denial by New York State of a water quality certificate (WQC), this time for Williams’ Northeast Supply Enhancement (NESE) project.
Adverse decisions in the appeals could impact not only the projects involved, but could also have wider repercussions for the industry, including for LNG pipeline projects where the pipeline is within one state and the export terminal is the delivery point for all contracts. And while the NESE decision will not be the last word for that project, it is certainly another indication of how difficult it will be to ever move natural gas through the State of New York to New England.
Nexus
Nexus can rightly point out that it was delayed by the lack of a quorum at FERC as the timeline benchmark to two comparably-sized projects filed after 2016 shows. The eight months to get the certificate order following the issuance of the environmental assessment certainly appears to be an outlier.
The appeal in the D.C. Circuit Court of Appeals in the Nexus case is a challenge to both the certificate order and the use of eminent domain by Nexus to acquire the easements needed to construct the pipeline. At the oral argument held on May 6, the court was primarily focused on the question of whether the exercise of eminent domain is proper if a pipeline is “primarily” designed to export natural gas to another country, in this case, Canada.
The lawyers arguing the case seemed to have trouble providing the court with the facts that would support such an analysis, and the court spent much of the time with the lawyer representing Nexus trying to clarify the basic facts of the case before them. Situations such as this can be problematic, as it can lead to opening up, rather than narrowing, the number of issues the court is considering.
The focus of the court’s questions was whether the pipeline had been properly approved under section 7 of the Natural Gas Act (NGA), which concerns “interstate” pipelines, or whether it should have been reviewed under section 3, which concerns “foreign commerce” pipelines. A pipeline that is granted a certificate under Section 7 of the NGA automatically receives the power to use eminent domain to acquire the property rights needed to construct the pipeline. However, a pipeline granted a certificate under section 3 of the NGA does not receive eminent domain authority. The question arose in this case because, according to the landowners whose property had been condemned, the “majority” of the contracts used to demonstrate the need for the project were held by shippers who had the right to move their gas all the way into the Dawn hub, which is located in Canada.
Based on the oral arguments, it seems unlikely that the court will find that Nexus is not an “interstate” pipeline. However, the reasoning that the court uses to make that finding could be significant, especially for LNG projects that have recently been approved. One judge asked the FERC attorney and the attorney for Nexus what they believed is the appropriate finding for a pipeline where “all” of the contracts supporting that pipeline are to an export point. FERC’s attorney said she was not aware that FERC had ever decided any such case, and the judge then asked her specifically if she was aware of FERC’s decision in the Driftwood LNG case, which she said she was not. The same judge then quizzed counsel for Nexus with a hypothetical case where a pipeline was located solely within one state and all of the contracts allowed for transport to a point of export. Nexus’s attorney said that was not this case, but that he thought if there were such a case, the pipeline could still proceed under section 7 if it was interconnected to the interstate pipeline system.
Potential Impact on LNG Cases
While the Driftwood case was brought up specifically in the oral argument for Nexus, it is not the only LNG pipeline where the LNG export terminal is the delivery point for 100% of the contracts used to justify the need for the project and where the pipeline stays completely within one state.
Driftwood
Source: http://driftwoodlng.com/pipeline/
Two other recently approved projects have this same characteristic.
Cheniere’s Stage 3 Pipeline/LNG Project
Source: https://www.ferc.gov/industries/gas/enviro/eis/2019/CP18-512-EA.pdf
TransCameron Pipeline/Calcasieu Pass LNG
Source: http://venturegloballng.com/calcasieu-pass/transcameron-pipeline/#.XN61ttNKh24
Also two other projects still pending at FERC have a single state pipeline that connects to the LNG terminal, Rio Bravo Pipeline/Rio Grande LNG and Pacific Connector/Jordan Cove LNG.
If the court in the Nexus case upholds the issuance of that certificate, but does so on the basis that the pipeline crossed state boundaries and at least some of the capacity is intended for domestic consumption, any certificate orders or the use of condemnation in the LNG pipeline cases above could be at risk if they are appealed to the DC Circuit. Therefore, even if Nexus wins its case, a careful review of the decision will be required to determine if there is a risk to these projects from the decision.
NESE
Late on Wednesday, the New York State Department of Environmental Conservation (NYSDEC) denied “without prejudice” the WQC for Williams’ NESE project. The denial was based on the fact that NESE had not demonstrated that its dredging in the Raritan Bay would meet New York’s numerical limits for copper and mercury.
The denial “without prejudice” means that Williams may resubmit its application and Williams has stated its intent to do so “quickly.” Williams also stated that it is confident that the new application will allow it to meet its “customer’s (National Grid) in-service date and avoid a moratorium that would have a devastating impact on the regional economy and environment.” Williams’ original projected in-service date was December 1, 2019 and National Grid has indicated that it needs the project to be in service by December 2020.
If Williams submits a new application, however, the NYSDEC is likely to consider that application as restarting the timeline for it to rule on that application, which means that a decision would not be due until one year from when the new application is received by the NYSDEC. That would mean that such a decision could be delayed until next summer. Also, the project still needs to be approved by the New Jersey Department of Environmental Protection. While New Jersey does not appear to have a one-year time limit on its decision, it is anticipated that it will act within that time period to reduce the risk of a claim of waiver. That decision is therefore expected by June 20. The road forward for NESE will be much clearer after New Jersey renders its decision on the project.
ACP
The oral argument held in the Fourth Circuit Court of Appeals on May 9 regarding ACP concerned the U.S. Fish and Wildlife Service’s (USFWS) biological opinion and incidental take statement (BO/ITS) for that project. The apparent bias of the panel of judges hearing that argument is perhaps best demonstrated by the history of the appeal laid out by ACP in its brief:
While trying to predict the outcome of an appeal based on the questions asked at the oral argument can be difficult, the continuing skepticism of this panel of judges remains apparent and creates a substantial risk for ACP that the court will once again void the revised BO/ITS. Two of the judges, Chief Judge Gregory and Judge Thacker, seem highly skeptical of the rigor being used by the current USFWS staff with regard to this project. The two judges seem very willing to focus on any evidence that would support a finding that the decision was arbitrary and capricious.
There is a common saying in the law, that bad facts can lead to bad law, and this case seems to be an example of judges seeking out any bad facts available to justify what could be a very bad decision. If the court overturns the revised BO/ITS, ACP can only hope that the court provides a clear explanation of what the USFWS needs to do to correct its errors. In the meantime, it seems likely that the court will vacate the entire BO/ITS and not just the portions that concern the species being challenged. Such an order would essentially limit construction activity across almost the entire project until a third revised BO/ITS could be issued. A decision is not likely until the end of June or July.
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