Major Delays for Atlantic Bridge, with Potentially Broad Industry Significance

Last Friday, Enbridge's Algonquin Gas Transmission asset filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit), claiming that the Massachusetts Department of Environmental Protection (MDEP) missed the deadline for acting on its application for an air permit for a proposed compressor station that is part of its Atlantic Bridge pipeline project. The same day, Algonquin and MDEP filed a joint motion, which, surprisingly, proposes to give the MDEP 16 additional months, to June 28, 2019, to reach a final decision that either approves or denies the air permit for the compressor station. The process used in Massachusetts should be watched closely by project developers, primarily because the MDEP delayed the review of federal permits while the need for preempted local permits was litigated.

Atlantic Bridge will be delayed approximately two years from its planned in-service date, November 2017.
States can delay a project under more than just the Clean Water Act.
Delayed state review is not just an issue in New York State or with Democratic governors.

Summary

The Town of Weymouth ("Town") has fought the Weymouth Compressor Station almost from inception. As part of its cooperation with local officials, Algonquin asked the Town to grant it a local and state wetlands permit, which the Town denied in June 2016. Algonquin appealed the denials to the MDEP, which reversed the Town's decision and approved the two permits. The Town appealed those approvals and Algonquin filed a suit in federal court seeking a declaration that the two permits were preempted, and therefore, not required for the project. In addition to these local permits, there are two federal approvals that have been delegated to the state and which appear to be required for the project to move forward. The first is a consistency determination under Massachusetts' Coastal Zone Management (CZM) Plan because of the compressor station's coastal location. The second is a state air permit, which Algonquin appears to concede is also a required federal permit that has been delegated to the state. When the MDEP reversed the Town's decision on the two permits, the project appeared to be moving forward until Massachusetts' Republican Governor Baker seemed to bow to the local community opposition. Late last summer, he instructed state department heads to investigate the potential air quality, public safety, and other implications of the project. That started a process that should be of concern to all other project developers.

Construction Not Likely to Begin Until June 2019

After Governor Baker issued his directive, the MDEP appears to have put its review of the required air permit on hold until Algonquin's preemption challenge of the two local/state permits was resolved. It also seems that the Massachusetts agency responsible for the CZM consistency finding also stayed its review of that application pending resolution of the preemption challenge. As a result of these delays, Algonquin last week filed an action with the DC Circuit in which it asked the court to establish a timeline for the MDEP's review of the air permit. Algonquin then reached an agreement with MDEP, giving the agency until January 11, 2019 to issue a decision approving or denying the air permit, and until June 28, 2019 to conclude any appeals necessary to issue a final decision with regard to the permit. Algonquin acknowledges in its pleading that the lack of this permit is prohibiting it from beginning construction on the station. Therefore, if the MDEP takes all of the time allowed under the joint motion, Algonquin would not be in a position to commence construction until June 28, 2019. It is not clear why Algonquin agreed to such a long review period for a minor air permit, but it is, perhaps, based on a calculation of how long it will take to receive a final consistency determination under the Massachusetts' CZM Plan.

Limited Impact on Anchor Shippers

While it was waiting for the review process to move forward in Massachusetts, Algonquin continued to work on the portions of the project in New York and Connecticut, and put those portions into service on the original in-service date of November 1, 2017. According to Algonquin, putting those portions into service allowed it to provide 40,000 Dth/day of interim firm service to the anchor shippers. However, it would appear that the Weymouth Compressor Station would be required to provide the 106,276 Dth/d of firm transportation service from Algonquin's Beverly station to various existing delivery points on the Maritimes and Northeast pipeline that was part of the project.

The Project Shippers on the Maritimes' system are: Heritage Gas Limited, Exelon Generation Company, LLC, Irving Oil Terminal Operations, Inc., Maine Natural Gas Company, and New England NG Supply Limited. It appears that Algonquin reached an agreement with its anchor shippers before agreeing to the extended review timeline. There is no indication of how the plans of these shippers will be impacted by this substantial delay of the in-service date for this pipeline, but local press reports indicate it could cost local gas users if the project is delayed beyond the 2019-2020 winter heating season.

A Water Quality Certificate is Not the Only State Delegated Permit

As we have reported in the past, states, and in particular New York, have used the water quality certificate required under section 401 of the Clean Water Act as a means to delay, and even block, projects that have been approved by FERC. This fight makes it clear that there are other federal permits that may be required for a project over which the states have at least the initial say. In this case, those permits were an air permit and a consistency determination under the Massachusetts CZM plan. While a CZM determination will be limited to projects built within the coastal zones of states, air permits are required of almost every project that includes a non-electric compressor station.

A Regional Fight with Possible Broader Industry Impacts

Massachusetts' use of the preempted local/state permits as a justification for delaying its consideration of required federal permits is a troubling precedent for developers, and one we have not seen elsewhere. If project opponents were to encourage other states to adopt such a process, project developers may need to pursue local/state permits earlier in the project and seek preemption determinations for any denied permits to avoid delay of federally required permits. This fight also shows that delays arising from state delegated federal permits may no longer be viewed as a New York problem. As we have noted with regard to the PennEast project, New Jersey has also taken some positions that will delay its review of that project, and now Massachusetts is substantially delaying the Atlantic Bridge project. Following Algonquin's withdrawal of its Access Northeast Project from the FERC pre-filing process in June 2017, there are no pipeline projects currently pending before FERC located in any of the New England states.