Special Report: DC Circuit Highlights Additional Vulnerability for Developers

Today, the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Energy Regulatory Commission's (FERC) order granting a certificate for Transco's Leidy Southeast Project. While the court found "no merit" in the claims made by Delaware Riverkeeper in challenging the certificate, the basis for the court's decision could result in more frequent rehearing requests and appeals of FERC notices to proceed with construction. As a result, the timeframe between the issuance of a certificate order and the start of construction could lengthen and require FERC to include the legal reasoning supporting the basis for issuing each notice. 

In our April 28 Insights, "Litigating Construction Notices: "Opportunities Multiply as They're Seized," we pointed out that during oral argument, the court indicated to the Delaware Riverkeeper that it should have appealed the notice to proceed with construction, or alternatively, seek rehearing of any of FERC's notices to proceed. And today's opinion clearly states that the proper procedural response in such a case is to request rehearing of the notice to proceed and then, appeal the agency's decision. As a result, requesting a rehearing of a notice to proceed is essential for project opponents to assert that activities such as tree felling should not be allowed to proceed prior to issuance of a Clean Water Act (CWA) Section 401 water quality certificate.

In this case, Delaware Riverkeeper challenged the FERC certificate on three grounds. First, it claimed that FERC could not issue the certificate order before Pennsylvania issued a CWA, Section 401 water quality certificate. Second, it claimed that FERC's environmental assessment was defective because it failed to properly classify wetlands under Pennsylvania's wetland classification system and under the U.S. Army Corps' classification system. Third, it claimed that FERC did not properly take into account the flow velocity on the pipeline. 

The court agreed with Delaware Riverkeeper that FERC may not authorize activities that could lead to a discharge covered by the CWA before the state in which the discharge would occur has issued a water quality certificate. However, in this case, the court found that the only order Delaware Riverkeeper properly appealed, the certificate order, did not authorize any such activities because FERC had conditioned the right to begin construction on receipt of a water quality certificate. The court refused to review any of the FERC notices to proceed issued before Pennsylvania issued the water quality certificate. Although those notices to proceed allegedly allowed activities that could result in a CWA discharge, the court found that Delaware Riverkeeper had not properly appealed those notices to proceed because it had not sought rehearing of those orders.

With regard to the wetlands challenges, the court found that FERC is not required to rely on state classification systems and did not do so in this case. Thus, whether FERC had properly used the state classification system was irrelevant. With respect to Delaware Riverkeeper's claim that FERC improperly used the U.S. Army Corps' classification system, the court found that even if there had been errors, Delaware Riverkeeper failed to prove those errors invalidated FERC's environmental assessment.

For a more detailed explanation of how this case may affect FERC processes and the commencement of construction following issuance of a certificate order, see our prior write-up on those issues, or give us a call to discuss.