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FERC Slaps State Overreach on Federal Jurisdictional Pipelines

The Legal Intelligencer

FERC issued a key and welcome ­decision on Sept. 15, when it held that the state of New York, through its passive-aggressive handling of a ­federal Clean Water Act (CWA) Section 401 ­certification, had waived its authority to issue the certification. With this decision, FERC effectively tamps down on states treating CWA certifications as political footballs in order to veto pipeline infrastructure projects based on politics and pressure by ideological, anti-natural gas interest groups, instead of actual law or facts.

This FERC decision involves the 7.8-mile Millennium Valley Lateral pipeline, which is intended to serve the 680 MW gas-fired CPV Valley Energy Center in Wayawanda, Orange County, New York, currently under construction. FERC had granted the ­certificate of public convenience and necessity for the line on Nov. 9, 2016, conditioned on receipt or waiver of state CWA Section 401 certification.

Millennium had filed its application for the CWA certification in November 2015. The New York State Department of Environmental Conservation (NYSDEC) slow-walked the application, issuing various further demands for additional information. It neither granted nor denied the certification. The federal Clean Water Act requires a state to grant or deny a CWA certification for a federal jurisdictional project within one year of receipt of the application.

In July 2017, Millennium asked FERC to declare that New York had waived its authority to issue or deny a water quality certification. While Millennium's request to FERC was pending, NYSDEC, realizing the pickle it was in, issued on Aug. 30—one day before NYSDEC's contended one-year deadline—a two-page letter (signed by the general counsel of NYSDEC) that purported to deny "conditionally" the Valley Lateral water quality certification. NYSDEC cited "new law," namely the recent D.C. Circuit decision in Sierra Club v. FERC, (D.C. Cir., Aug. 22). In Sierra Club, the U.S. Court of Appeals for the D.C. Circuit ­remanded a case to FERC holding that FERC was ­obligated to review potential downstream air quality impacts from ­gas-fired power plants served by that proposed pipeline.

In a well-reasoned and copiously ­footnoted decision, FERC agreed that New York had waived its Section 401 ­certification rights. As FERC appropriately noted (citing Alcoa Power Generating v. FERC , 643 F.3d 963, 972 (D.C. Cir. 2011)): "Congress plainly intended to limit the amount of time that a state could delay a federal licensing proceeding without making a decision on the certification request. This is clear from the plain text. Moreover, the conference report on Section 401 states that the time limitation was meant to ensure that "sheer inactivity by the state ... will not frustrate the federal application."

FERC was exactly right to act, and it reached the correct conclusion. The problem of "state veto" frustrating federal jurisdiction pipelines has reached epidemic proportions. The Sierra Club, of course, bemoaned the decision with a formulaic political statement that "FERC's reversal of Gov. Andrew Cuomo's decision is an insult to New Yorkers," and hurled derogatory epithets at FERC and natural gas.

NYSDEC's treatment of the Millennium application follows its serial Section 401 denials for the Williams Constitution Pipeline in April 2016 and for the NFG Midstream Northern Access Pipeline in April of this year. In both cases, FERC had already concluded its NEPA analysis, finding no environmental impacts that could not be mitigated, and issued FERC certificates. The NYSDEC denials halted both projects despite the FERC approvals.

New York's Valley Lateral Section 401 denial differed radically from the prior two, in a manner that lays bare the political motivation. Instead of being based on impacts to state water quality resources, the Section 401 denial was based on Sierra Club and the alleged inadequacy of FERC's NEPA analysis of downstream air quality impacts. Sierra Club clearly has nothing to do with New York's role under the CWA to review a project for consistency with state water quality standards. It is not NYSDEC's job, nor within its authority under the CWA or as a state under the federal system, to evaluate and judge FERC's NEPA analysis. That is the province of FERC and the U.S. Court of Appeals.

The NYSDEC's action was even less sustainable because NYSDEC had already granted all the required air permits for CPV's facility! Ironically, there is no question that CPV's facility coming on line with natural gas fuel would reduce GHG emissions overall, because it would displace current coal-fired resources.

Obviously, NYSDEC will go to great lengths to block natural gas pipelines. Considering the late-stage construction of the CPV Valley Energy Center and wide support for that project within New York, the tactic of using an 7.8 mile pipeline lateral to block the project represents conduct that is at least "arbitrary and capricious"—the standard applied to Section 401 denials on appeal.

Importantly, those who viscerally cheered New York's move on Valley Lateral may end up ruing the day, since it may bring to an end states' unilateral authority to veto FERC jurisdictional pipelines. The Sept. 15 FERC decision is a step in that direction. It could also have a chilling effect on those seeking to invest in New York infrastructure—energy-related or not—because it's impossible to know what the rules are.

New York is not the only state contorting the Clean Water Act to serve purposes never intended. On Sept. 7, the West Virginia Department of Environmental Protection (WVDEP) took the unprecedented step of actually revoking a Section 401 certification for the Mountain Valley pipeline—a project for which it had granted the Section 401 certification in March 2017 and then reaffirmed it in May!

The Sierra Club immediately appealed WVDEP's original certification to the Fourth Circuit, citing the usual pro forma grounds of "abuse of discretion" with a few other throw-ins, including anti-degradation policy, blasting effects and failure to respond to public comments. Of course, all of these factors had been previously commented on during the extensive state of West Virginia public process, and were considered by WVDEP in granting—and then ­reaffirming—the Section 401 certification.

The Sept. 7 WVDEP one-paragraph revocation letter (this time without a press release), directed not to the project sponsor, Mountain Valley Pipeline Co. (a part of EQT), or to FERC, but rather to the Army Corps of Engineers, provides no rationale at all for WVDEP's about-face and is clearly a political cave-in to the Sierra Club and its followers.

It is questionable whether the WVDEP "vacate" decision is legally valid. New York and West Virginia have shown that they have gone well beyond responsibly judging the consistency of a federally regulated interstate project with state water quality standards. The very balance of state-federal regulation of interstate FERC jurisdictional pipelines established by federal law is being attacked, and FERC's action with regard to Valley Lateral is a step in the right direction.

The overarching point that FERC's Sept. 15 decision appropriately vindicates is that the CWA was not intended by Congress to give the states the right to treat §401 certifications like political footballs to serve ideological agendas, as New York and West Virginia have done in successive weeks.

More is needed, though, since states can avoid a waiver by simply denying certification—as they have been wont to do. Congress needs to step in to correct the improper "state veto" problem. It should amend the CWA to harmonize its state review provision with the federal Coastal Zone Management Act (CZMA), which has been working very well for a long time. The CWA's very narrow, "arbitrary and capricious" standard of review should be replaced with a "statutory purpose/national interest" standard to be administered by a federal cabinet officer (the secretary of commerce, in the case of the CZMA). While such an amendment would take a lot of effort to achieve, it would appropriately rectify this unwarranted "state veto" problem.

“FERC Slaps State Overreach on Federal Jurisdictional Pipelines,” by Michael L. Krancer, Frederick M. Lowther, and Margaret Anne Hill was published in The Legal Intelligencer on September 18, 2017. To view the article online, please click here.

Reprinted with permission from the September 18, 2017, edition of The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.