Similar Problems, Different Risks - MVP and ACP
The outlook for EQT’s Mountain Valley Pipeline (MVP) and Dominion’s Atlantic Coast Pipeline (ACP) continues to change on an almost daily, or today, hourly basis. Within just the last week, ACP had its request for a rehearing of an adverse decision by the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) denied, and earlier today, the Virginia Water Control Board held a hearing, which we attended, about whether it would revoke MVP’s water quality certificate (WQC) that was originally granted in 2017. Finally, on Monday, the comment period closes on West Virginia’s proposed modification to its programmatic WQC -- with which both projects must comply -- to utilize the U.S. Army Corps of Engineers (USACE) nationwide permit 12 (NWP12).
Today, we look at the myriad of issues these projects face to see how the regulatory obstacles each project faces compare to similar obstacles faced by the other. Each of the issues facing the projects requires an initial regulatory decision which can, and probably will, be challenged in court, most likely at what appears to be the Fourth Circuit, which has been hostile to the projects. This means that putting an outside time limit for either project is difficult, as the court has no time limit for rendering its decision on a disputed issue. In general, however, the Fourth Circuit has been acting seven to twelve months after an appeal is filed, so an assumption of nine months for an appeal to be completed seems appropriate. However, absent a stay being issued, the project could proceed as soon as the regulatory decision is rendered.
If you are a shipper or commodity trader waiting for this capacity to come online, or are a contractor waiting for the signal to start or restart work on either project, or are an investor in any of the companies involved in these projects, we provide you with the current scorecard so that you can keep all of the issues in front of you as the projects move forward.
BREAKING: At today's hearing of the Virginia Water Control Board, the Board unanimously reversed its December decision to revoke MVP's water quality certificate on advice of counsel, but urged swift and vigorous enforcement action of the existing permit.
Pipe in the Ground
Advantage MVP
No matter what other issues a developer confronts, the key consideration for assessing the progress of a pipeline project is how much pipe does it actually have in the ground. This measure is to MVP’s advantage. Based on the most recent periodic report filed by MVP, it has almost 50% of the pipeline backfilled, which means it has been mechanically completed. Based on the project’s prior reports, we estimate that once it restarts work, it will have about five months of work left. ACP’s periodic reports are not as detailed as MVP’s, but we know that it has always intended to build the project over two construction seasons. Also, we know that ACP’s right to construct in Virginia has not been in place nearly as long as MVP’s. Based on those two factors, we would assume that ACP has 14 to 16 months of work to complete the project once it resumes work in full.
Virginia WQC
Advantage ACP
The state of Virginia decided to enhance its review of both pipelines by requiring both projects to comply with certain conditions in upland areas that the Virginia Department of Environmental Quality determined were necessary to protect the water quality within the state. In December of 2017, MVP received an unconditional WQC, but ACP was granted a conditional WQC. The conditions of ACP’s WQC were not satisfied until August of 2018. Virginia’s issuance of the WQC for both projects was appealed to the Fourth Circuit, which upheld Virginia’s actions for both projects. This puts both projects on equal footing, but subsequent developments concerning MVP’s activities give ACP an advantage on this issue.
As recounted above, the State Water Control Board voted to reverse its December decision to revoke the WQC for MVP. While this is good news, the Board also urged the Attorney General to vigorously enforce the existing permits. Also, Virginia’s Attorney General - filed a civil lawsuit against MVP in December of 2018 alleging numerous violations of Virginia’s water quality standards. In January of this year, Equitrans Midstream, which owns an interest in the MVP project, acknowledged that the MVP joint venture received a letter from the U.S. Attorney's Office for the Western District of Virginia stating that it and the EPA were investigating potential criminal and/or civil violations of the Clean Water Act and other federal statutes as they relate to the construction of MVP. While these actions may not directly impact the schedule for the project, the additional scrutiny certainly puts the project at a disadvantage to ACP, provided ACP is better able to comply with the standards once it starts construction in Virginia.
West Virginia WQC
Tossup
In West Virginia, the USACE verified that both projects complied with NWP12. The verifications were appealed to the Fourth Circuit, which found that the verification for MVP did not comply with all of the conditions in West Virginia because NWP12 incorporated conditions from the programmatic WQC issued by the West Virginia Department of Environmental Protection (WVDEP) that the project did not satisfy. After the Fourth Circuit vacated the verification for MVP, the court, upon request of the USACE, dismissed the appeal of the ACP verification and vacated and remanded it for further consideration in light of the MVP decision.
It appears that both projects have decided to remedy the issue by relying on an amended programmatic WQC that the WVDEP has issued for public comment. The public comment period ends on Monday. But as we discussed in Mounting Hurdles for Mountain Valley Pipeline and Atlantic Coast Pipeline, we expect this amended programmatic WQC to be challenged in court both in general and as applied to each of the projects. So this process is unlikely to result in a quick resolution of the validity of NWP12 in West Virginia. The regulatory process for issuing the revised permit may take only one to three months, but an appeal may not be resolved for an extended period after issuance.
Rights of Way Across Federal Lands
Advantage MVP
MVP needed rights of way across the Jefferson National Forest, the Appalachian Trail (AT) and the Gauley Trail, all federally owned properties. ACP needed rights of way across the federally owned Washington National Forest, the AT and the Blue Ridge Parkway. The grants of all of these rights of way have been appealed to the Fourth Circuit. The slight advantage here is to MVP, mainly because its challenges are further along in the process and should therefore be resolved sooner. The one wild card for both projects is the crossing of the AT.
Mountain Valley Pipeline and Appalachian Trail
Atlantic Coast Pipeline and Appalachian Trail
In July 2018, the Fourth Circuit vacated approval of MVP’s right of way through the Jefferson National Forest, but did not directly address MVP’s right to cross the AT. In December 2018, the Fourth Circuit vacated ACP’s right of way through the Washington National Forest and the AT, which essentially means that the revision to MVP’s grant may have a six month head start on the revision to ACP’s grant.
ACP asked the entire Fourth Circuit to reconsider that decision, a request that MVP supported through its own filing in the case. The court refused to reconsider the panel’s decision, which leaves ACP in a difficult position. It can seek to appeal the case to the Supreme Court (which rarely takes such cases), or it can pursue a new grant using a different administrative path, which may or may not be acceptable to the court, or it may seek an act of Congress to allow the crossing.
MVP’s crossing of the AT was not challenged in the case decided last July, but it runs the risk of that crossing being challenged when the U.S. Forest Service grants it a new right to cross the forest and AT. While presumably the Forest Service has been working on a revised approval since last July, MVP’s pathway to receiving that approval is likely complicated by the court’s decision regarding ACP’s AT crossing.
We understand that both companies are seeking to resolve this issue through an administrative process that will not require congressional action, but any such resolution would likely be appealed to the Fourth Circuit. If the federal agencies, or the court on appeals, concludes that granting a crossing of the AT requires an act of Congress, that would substantially delay both projects as they seek such action or assess a reroute or project redesign that would not require congressional action. In addition to this common problem, in January 2019, the National Park Service requested the Fourth Circuit to remand its approval for ACP to cross the Blue Ridge Parkway after considering the impact of the court’s ruling concerning the crossing of the AT. This remand will likely run on a schedule similar to the crossing of the AT, but creates another risk to ACP that MVP does not face.
FERC Certificate Advantage MVP
Both projects received their FERC certificates on October 13, 2017. The order denying rehearing for both projects was appealed to the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit). However, the appeal of MVP’s certificate was dismissed by the DC Circuit on February 19, 2019. The appeal of ACP’s certificate is still pending before the DC Circuit and the court has not yet scheduled the case for oral argument. Therefore, the risk to MVP from a reversal is substantially lower.
Endangered Species Advantage MVP
Both projects required FERC to consult with the U.S. Fish and Wildlife Service (USFWS) regarding the impacts of the projects on endangered species. However, only the USFWS decision for ACP, referred to as a Biological Opinion and Incidental Take Statement (BO/ITS), was appealed to the Fourth Circuit. The Fourth Circuit vacated the first BO/ITS on August 6, 2018. The USFWS then issued a revised BO/ITS which was also appealed to the Fourth Circuit. On December 7, 2018, the Fourth Circuit issued a stay of the revised BO/ITS and then denied a motion by ACP to clarify that the areas impacted were limited to those portions of the project that could impact the four species that were the subject of the appeal. The case has been tentatively scheduled for oral argument in early May. Until then, ACP cannot work in the areas covered by the BO/ITS. So this potential for delay of at least three to nine months is one not faced by MVP.
Meeting Projected In-Service Date Toss-up
Given that the advantage in most of the above areas is to MVP, it might seem strange that we call it a toss-up as to which project is most likely to meet its currently projected in-service date.
MVP has a much earlier projected in-service date of by the end of this year, versus ACP’s date of early 2021, which simply means MVP has less time to allow the issues it faces to be processed through the regulatory agencies and courts. Even though ACP has a much later projected in-service date, it has less pipe currently in the ground and was always planning on constructing the project over two construction seasons.
From here, we are watching for several milestones to assess substantive schedule impacts:
- The release of the WV WQC allowing wetland work - we expect corresponding activity from the projects and legal reaction from opposition groups
- Federal land ROW permits allowing work in National Forests
- Administrative steps taken to reinstate federal ROW for the AT crossing
Insights Coming Soon
- Rate case updates
- Discussion on pipeline cost data