The Hits Keep on Comin’ for NESE and Line 3; Are Line 5 and PennEast Next?
Both Enbridge’s Line 3 project and Williams’s Northeast Supply Enhancement (NESE) project received bad news this week. For Line 3, the Minnesota Court of Appeals reversed and remanded the Minnesota Public Utility Commission’s finding of adequacy regarding the Final Environmental Impact Statement (FEIS) that was prepared for the project. For NESE, the state of New Jersey denied its federally required Clean Water Act permits and related state permits.
Today, we look at the impact of these decisions on those two projects, and also look ahead to trouble that may be brewing for Enbridge’s Line 5 project in Michigan and UGI’s PennEast project , which still must obtain approvals from New Jersey. For Line 3 we believe there is a path forward that does not require restarting the certificate process and for Line 5 that a mutually agreeable resolution with the State of Michigan is likely. But for NESE and PennEast, the hostility from New Jersey and New York makes their paths forward more problematic.
Line 3 - Resolving Identified Deficiencies is Workable
On June 3, the Minnesota Court of Appeals reversed and remanded a decision by the Minnesota Public Utilities Commission (MPUC) that had determined the Final Environmental Impact Statement (FEIS) prepared for the Line 3 project was “adequate.” The Court of Appeals found that the FEIS was not adequate because it did not “address the potential impact of an oil spill into the Lake Superior watershed.” It therefore reversed the commission’s adequacy determination and remanded the case to the MPUC for further proceedings consistent with the court’s decision.
Enbridge could appeal the decision to the Minnesota Supreme Court, but based on our review of similar cases, that process would likely take approximately one year before that court could issue a decision overturning the Court of Appeals decision. The other choice would be to work with the MPUC to correct the deficiency in the FEIS noted by the court. The MPUC had previously found an earlier draft of the FEIS to be inadequate and had directed the Minnesota Department of Commerce’s Energy Environmental Review and Analysis (DOC-EERA) division to remedy four deficiencies it found in that version. The DOC-EERA issued a revised FEIS 60 days later, which is a statutory requirement. This process would certainly seem to be the quicker path for gaining a revised and “adequate” FEIS.
One complicating factor is that the MPUC relied on the FEIS when it issued the project a certificate of need (CN) and route permit (RP). Those two decisions have also been appealed to the Minnesota Court of Appeals. Even before the court rendered its decision on the FEIS, the MPUC had asked for a stay of the RP appeal. The MPUC argued that the court should stay the RP appeal because the court’s decision on the FEIS or the CN could render the RP appeal moot. According to the MPUC’s motion, the RP decision could only be made after final approval of the FEIS.
Similarly, it argued that the CN proceeding was currently running behind the RP appeal, but since Enbridge needed a CN, the RP appeal should be stayed until the CN proceeding was decided. Naturally, those opposing the project supported the MPUC’s motion, but Enbridge opposed it. In a brief decision, the Court of Appeals granted the requested stay and in language not essential to its decision, in legal terms, dicta, the court seemed to agree with the notion that the reversal of the FEIS decision could invalidate the CN and RP decisions.
However, as explained by Enbridge in its opposition to the stay request, such a result is generally contrary to the law. While Enbridge agrees that it cannot construct the Line 3 pipeline without a CN or RP, neither the reversal of the FEIS or the CN would necessarily invalidate the RP decision. As Enbridge suspected at the time it was opposing the stay motion, any reversal of the FEIS “would likely result in remand, allowing the MPUC to address any deficiencies in a new order.” Therefore, according to Enbridge, any appeals of the CN and RP decisions would still need to be resolved.
We believe that Enbridge has properly interpreted the law in this case and that the reversal of the FEIS decision would not invalidate the CN or RP decisions, if the FEIS can be made adequate upon remand. That is why we expect that Enbridge will follow the path they laid out following the decision, which is to work with the MPUC to resolve the deficiency in the FEIS identified by the court.
NESE - Work with Regulators or Go To Court, Both Jeopardize Heating Season Service
As we have discussed before in Court Rejects FERC’s One-Year Sec. 401 Review Standard - Good News for Developers? the state of New Jersey is unique in that it has been given the authority to issue approvals under section 404 of the Clean Water Act (CWA), which in most states is controlled by the United States Army Corps of Engineers. This gives the state’s Department of Environmental Protection (NJDEP) more control over projects affecting wetlands than other states, which only have control over the issuance of a water quality certificate (WQC) under section 401 of the CWA. NESE needs approval from both New York and New Jersey under the CWA for the project to move forward and those two states seem to be in a dance to see which will be the first one to approve or conclusively deny the required federal approvals.
On May 15, the state of New York announced that it had denied NESE a WQC on a fairly narrow ground and also noted that its denial was without prejudice, which meant that NESE could reapply. Williams says it addressed the concern raised by New York and refiled the application within 36 hours, on May 17. On May 29, NYSDEC declared the revised application complete and opened a public comment period that ends on June 13. At an investor conference on May 30, Williams’s CEO, Alan Armstrong, said that New York did not want to approve the project ahead of New Jersey, but also wanted to be in a position to issue its approval in the same time frame as New Jersey, which was supposed to issue its decision by June 20.
The New Jersey denial letter appears to be more substantive than the New York denial and it does not appear that a quick remedy to the problems noted will be possible. If New York was in fact waiting to see what New Jersey did before it acted, this could also mean that New York will not act as promptly as Williams had hoped. It is certainly possible that New York could wait another year before acting on the renewed application that Williams promptly filed on May 17. In any event, Williams is faced with difficult choices going forward, which is to continue working with the regulators in these two states or filing suits challenging the denials. In an announcement following the decision, Williams indicated that it will resubmit its application quickly and still believes it can be in service by the 2020/2021 winter heating season. That assumes the two state environmental departments are working in good faith in reviewing the project, which may not be a valid assumption. If they both take a year to approve the applications, we simply don’t see a path that allows that in-service date to stand.
Line 5 - Shutting Down the Pipeline is Unlikely
Enbridge’s Line 5 has been under scrutiny in Michigan because it traverses the Straits of Mackinac and, in April 2018, was struck by a ship’s anchor, which had unknowingly been released and was dragging on the bottom of the lake. A May 21, 2019 report by the National Transportation Safety Board (NTSB), which became widely available earlier this week, has increased the political pressure to replace Line 5 through the Straits with a tunnel that would reduce the risk of an oil leak to almost zero, according to Enbridge. Governor Whitmer is reported to have sent a letter to Enbridge’s CEO on June 3 seeking a conceptual agreement by June 10 and Attorney General Nessel has indicated she will give the governor until the end of the month to reach an agreement with Enbridge. Following the release of the NTSB report, Attorney General Nessel reiterated that she is “prepared to take legal action to decommission Line 5 as quickly as possible to protect the fresh water resources that are absolutely critical to our state.”
We remain convinced that our prior assessment of this situation in Enbridge’s Line 5 In Michigan - No Good Deed Goes Unpunished remains accurate and that any attempt to shut down the existing pipeline will not be an easy process for the Attorney General. Therefore, we expect instead that the governor and Enbridge will be able to find a solution to this situation that is satisfactory to both.
PennEast - Don’t Expect Construction Until Late 2020, At the Earliest
PennEast is still in the process of completing its application for the required wetlands permits in New Jersey after it received authority to go on the property of landowners who had refused access. PennEast has not stated when it intends to file its application for the permits needed from New Jersey. However, given New Jersey’s continuing opposition to the project, which we discussed in PennEast Progress Continues to be Bogged Down by the Garden State , we expect New Jersey to take a full year to complete its review once that application is filed. So for now, we don’t see how PennEast would be able to begin construction, assuming New Jersey ultimately approves the permit, until late 2020.
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