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The West Firm Provides an In-Depth Analysis of Interstate Pipeline Siting in New York State

Cuomo Administration- 2, Natural Gas Infrastructure – 1

The Cuomo administration, through the New York State Department of Environmental Conservation (the “Department”), has dealt a severe blow to industry’s efforts to bolster the natural gas interstate infrastructure passing through New York State.  The Department has recently denied the construction and operation of three substantive pipeline projects by denying these projects certification pursuant to Section 401 of the Federal Water Pollution Control Act, more commonly known as the Clean Water Act (“CWA”).  As a result, even though these projects are highly regulated by the Federal Energy Regulatory Commission (“FERC”), industry has been unable to construct and operate natural gas pipelines that are sorely needed to satisfy the energy demand in the Northeast.  These denials are based upon putative water quality considerations and other environmental factors.  Thus far, the courts have been unwilling to rebuke this campaign by the Cuomo administration, but a recent decision from FERC holds out promise that the Department will no longer be able to use administrative delay to frustrate these projects.

The first of the trilogy of adverse decisions was rendered by the Department on April 22, 2016, when it denied Constitution Pipeline Company, LLC’s (“Constitution’s”) application for certification, pursuant to the Section 401 of the CWA, of that the portion of Constitution’s proposed 121-mile interstate natural gas pipeline in New York State.  In denying the application, the Department concluded that Constitution’s project did not mitigate adverse consequences to streams and wetlands, and that a less impactful alternative was available.  Notably, Constitution received all other federal approvals required for the construction and operation of the project, including certification from FERC.

Constitution responded with two separate court actions – one in the United States District Court for the Northern District of New York (“Northern District”) and one in the United States Court of Appeals for the Second Circuit (“Second Circuit”).  The Northern District case challenged the requirement of the Department’s decision indicating that a permit under the State Pollution Discharge Elimination System (“SPDES”) program was required.  Constitution asserted that the SPDES program was preempted by federal law.  On a motion to dismiss, the Northern District denied jurisdiction on the grounds that Constitution had not suffered an injury-in-fact and, therefore, Constitution did not have standing to bring the case.  As a consequence, the Northern District did not reach the merits of that case.

Contemporaneously, Constitution sought review from the Second Circuit by a petition that challenged the timeliness of the Department’s decision and, alternatively, asserted that the Department’s decision was arbitrary, capricious and ultra vires, because Constitution submitted sufficient information to demonstrate compliance with New York State’s water quality standards.  In a decision handed down on August 18, 2017, the Second Circuit denied Constitution’s petition.  Constitution’s timeliness argument was premised upon the Section 401 of the CWA, which requires decisions on a request for certification within a reasonable time (which shall not exceed one year) after the request for certification.  The Second Circuit made short shrift of this claim and dismissed it on the grounds that there was nothing in the administrative record to establish that the Department had received information that it had consistently and explicitly requested over the course of several years.  In doing so, the Court concluded that Constitution never submitted a complete application to the Department that would trigger the time for review.  The Court then proceeded to the merits of the case and the Second Circuit’s review of the Department’s denial is most significant.  After chronicling the Department’s numerous information requests to Constitution relative to the need to examine trenchless crossing techniques in streams and waterbodies and the failure of Constitution to respond to those requests in a meaningful way, the Court rejected all challenges on the merits.  Indeed, the Court noted the following:

Here, the record amply shows, inter alia, that Constitution persistently refused to provide information as to possible alternative routes for its proposed pipeline or site by site information as to the feasibility of trenchless crossing methods for streams less than 30 feet wide – i.e., for the vast majority of the 251 New York waterbodies to be crossed by its pipeline – and that it provided geotechnical data for only two of the water bodies.

The Second Circuit also observed that, through the certification requirement under Section 401 of the CWA, “Congress intended that the states would retain the power to block, for environmental reasons, local water projects that might win federal approval.”  Further, as found by the Second Circuit, the Constitution’s claim that it has provided sufficient information to the state regulator – premised on “industry preferences” or so-called industry standards – does not “circumscribe environmental relevance” and, therefore, will not render arbitrary and capricious the state regulator’s denial based on lack of sufficient information.

The second Department denial in the trilogy relates to the proposed pipeline project by National Fuel Gas Supply Corporation and Empire Pipeline, Inc. (collectively, “National Fuel”) to construct a new 97-mile, 24-inch diameter interstate transmission pipeline that would transport natural gas extracted in Pennsylvania and areas in New York to areas within the State of New York, the Northeast and Midwest regions of the United States and Canada.  Again, similar to Constitution’s project, this project received all other approvals, including a certificate from FERC.  In denying the project, the Department concluded that the application failed to demonstrate compliance with the New York State water quality standards.  Sound familiar?

National Fuel responded by challenging the Department’s determination by filing a petition before the Second Circuit.  That case is currently being briefed and will be decided following oral argument, which is scheduled to occur in mid-November.  However, the prospect for a favorable result before the Second Circuit remains uncertain given the sound rebuke by the Second Circuit of the Constitution petition.

The final Department denial in the trilogy relates to the proposed lateral expansion of the Millennium Pipeline known as the Valley Lateral Project, which is a lateral 7.9-mile, 16-inch diameter natural gas pipeline that to connect the existing Millennium Pipeline to the controversial 650-megawatt gas-powered CPV Valley Energy Center in Orange County, New York.  This denial presents a new twist.  The Department had objected to FERC’s review of the Valley Lateral Project on the grounds that the environmental review is insufficient for failing to consider greenhouse gas emission impacts from the project.  Based upon a decision from the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) in Sierra Club v. FERC, dated August 22, 2017, the Department concluded that the environmental review was, in fact, deficient for failure to consider downstream greenhouse gas impacts of natural gas use.  thus, this case was decided based upon greenhouse gas issues, not water quality issues.

Interestingly, prior to this decision, Millennium Pipeline Company, L.L.C. (“Millennium”) sought review in the DC Circuit based upon the Department’s failure to render a timely decision.  Like the Northern District decision on the Constitution project, the DC Circuit declined jurisdiction on the basis of standing, but indicated that Millennium could take its timeliness case to FERC to render a final decision on the matter.  On July 21, 2017, Millennium filed with FERC a Request for a Notice to Proceed with Construction as a result of the Department waiving its authority to issue a water quality certification under the CWA for the project.  The Department objected to Millennium’s contention that the Department waived its authority to issue a water quality certification and stated in its comments that the Department had one year from August 31, 2016, the date the Department received a complete certification application from Millennium, to render its decision.

In a decision, dated September 15, 2017, FERC determined that the Department did, in fact, waive its authority to issue a water quality certificate under Section 401 of the CWA for the Valley Lateral project.  Specifically, FERC held that the Department had one year from November 23, 2015, when it received Millennium’s original application to render a decision.  Since the Department did not do so, it waived its authority to certify the project met New York’s water quality standards under Section 401 of the CWA.

Where does this leave us?  FERC’s decision is a definite victory for Millennium, as the decision may clear the way for the construction of the Valley Lateral Project.  Although court review is likely, this may bring an end to the common tactic employed by the Department to indicate that it’s time for review does not commence until it receives a complete application.  Judicial review before the DC Circuit will highlight the conflict between the FERC decision regarding timeliness and the short shrift that the Second Circuit gave to the timeliness issue regarding the Constitution project, seemingly condoning the Department’s completeness argument.  If we end up with conflict between the two Circuit Courts, review before the United States Supreme Court may be necessary to resolve that conflict.  Also, the utility of FERC’s decision for future projects is unclear, because the Department will most likely avoid this pitfall by making timely decisions in the future.  Even the FERC decision noted that the Department can deny the application prior to the end of the one year time limit.  Therefore, this decision will likely not change much in the New York regulatory landscape, leaving us in a state where it is difficult, if not impossible, to certificate interstate pipeline projects carrying natural gas that is needed for business development, reduced emissions and national security.  FERC’s decision is step in right direction, but the ultimate relief from the current state of affairs rests with Congress.  In order to promote national infrastructure projects, amendments to the CWA and the Natural Gas Act are required authorizing the FERC to override state decisions concerning water quality certifications and other environmental issues.

Tom West is the Managing Partner of The West Firm, PLLC, located in Albany, New York. The West Firm represents a broad variety of energy developers in New York and Pennsylvania.  Mark Wagner, an Associate at The West Firm, PLLC, assisted with authoring this article.  Tom West represented the Millennium Pipeline project in 2006 regarding environmental approvals from FERC, the Army Corps of Engineers and the New York State Department of Environmental Conservation regarding numerous river, stream and wetland crossings, and the crossing of constitutionally protected state lands and the Palisades Park.