November 2017 Vol. 72 No. 11

Washington Watch

FERC Sets Precedent For Overriding State Blockage Of New Pipelines

The Federal Energy Regulatory Commission (FERC), under new Chairman Neil Chatterjee, wasted no time making clear that it would use the exemption authority given to it recently by a U.S. Court of Appeals in the District of Columbia in order to approve pipeline construction where states balk at issuing decisions on Clean Water Act permits. The Commission’s decision in September may have wider implications, given a number of other pipeline owners arguing that construction is being delayed by balking state agencies.

One of those is the Constitution Pipeline, which in August got a boost from the U.S. Court of Appeals for the Second Circuit – following the DC Appeals Court decision in June – confirming FERC’s authority to make exemption decisions. Constitution had sought the Court’s agreement with the pipeline’s contention that the New York State Department of Environmental Conservation (NYDEC) was “arbitrary and capricious” in delaying a decision on a water quality permit after FERC approved construction in December 2014.The 125-mile Constitution pipeline would move Marcellus shale gas to various parts of New York State.

National Fuel Gas Company has already asked the FERC to exempt its Northern Access Project from needing water quality certification from the NYDEC because of that agency’s failure to act within 12 months. The project is a planned 96-mile pipeline from the Marcellus region to New York State areas.

The failure of the NYDEC to act on schedule was the nub of the complaint made by Millennium Pipeline Company LLC, about its 7.8-mile Valley Lateral Project in Orange County, NY, which was approved via a declaratory order the Commission issued on Sept. 15, 2017. Millennium was one of two pipelines that had sought confirmation of FERC’s exemption authority from the DC Appeals Court. Millennium also argued the NYDEC had failed to issue a timely decision – either “for” or “against” – on Millennium’s application for a water quality certification under the Clean Water Act (CWA). The CWA requires state action on a 401 water quality certification within 12 months of receipt of that application.

In issuing its declaratory order, FERC backed Millennium’s contention that its application for a CWA water quality permit was received by the NYDEC on Nov. 23, 2015, when it was first submitted. The NYDEC had argued that it received the application on Aug. 31, 2016, after Millennium had submitted additional information in response to NYDEC’s second Notice of Incomplete Application, sent two months earlier.

FERC said the 12-month clock on water quality certification starts at the point a state “receives” an application. The need for pipeline companies to obtain that certification is waived, according to section 401 of the CWA, when the certifying agency “fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request.”

NYDEC is reviewing FERC’s decision on Millennium and says it “will consider all legal options to protect public health and the environment.”
In June, the DC Appeals Court told Millennium and Tennessee Gas Pipeline, which was protesting a locality’s failure to issue a Clean Air permit (where the timeline extends to 18 months), to ask FERC for an exemption from the CWA  requirement, which it said FERC could issue, despite NYDEC not acting. FERC had not, to that point, ever issued such an exemption for pipeline construction. Its decision to do so on Sept. 15 was precedent setting.

Monique Watson, of counsel at Steptoe & Johnson and a former deputy director of the office of energy market regulation, division of pipeline regulation at FERC, expects the FERC Millennium order to make it clearer to state agencies when they have to determine they have received a section 401 application. “FERC’s order will incentivize both the agencies and the applicants to work together more quickly,” she said.

It is not clear, however, whether a state can stop a project by refusing to approve a 401 application even on a timely basis. Watson suggests in that instance, the pipeline company might have to work to adjust the projected route of the pipeline.

The failure of states and federal agencies to participate in a timely manner in the FERC completion of an environmental impact statement and their ability to withhold permits after FERC project approval, was the rationale for the Promoting Interagency Coordination for Review of Natural Gas Pipelines Act (H.R. 2910) passed by the House on July 19, mostly on a party line vote. FERC’s decision in the Millennium complaint apparently lit a fire under Sens. James Inhofe (R-OK) and Angus S. King Jr. (I-ME). Five days after the FERC order was issued, they introduced a companion version of the House bill called the Coordinating Interagency Review of Natural Gas Infrastructure Act of 2017.

Both bills make FERC the lead agency for the purposes of conducting and completing a National Environmental Policy Act (NEPA) review, allowing it to set up a schedule which state and federal agencies must meet. This applies, according to the House version, “unless the agency notifies FERC in writing that doing so would impair the ability of the agency to conduct needed analysis or otherwise carry out the agency’s obligations.”

DOE Wants to Expedite Small LNG Exports

The Department of Energy wants to speed approval of exports of relatively small volumes of liquid natural gas (LNG) to mostly Latin American countries. These would be countries with whom the United States does not have a free trade agreement (FTA). DOE approvals of LNG exports to countries the U.S. has an FTA with are nearly automatic. But as LNG exporting has become more prominent in the past decade, producers wanting to export to non-FTA markets have run into political headwinds from industrial manufacturers concerned that such exports increase the cost of domestic natural gas, which they depend on to run factories.

The DOE, cognizant of those manufacturer concerns, would limit its automatic approval to non-FTA markets to exports in a volume up to and including 0.14 billion cubic feet (Bcf) per day (Bcf/d), and where the DOE’s approval of the application does not require an environmental impact statement (EIS) or an environmental assessment (EA) under the National Environmental Policy Act of 1969 (NEPA).

The DOE says the new policy, if finalized, would have only a minimal impact on the price of natural gas in the U.S. To date, DOE has issued 28 final export authorizations to non-FTA countries, bringing the cumulative total of approved non-FTA exports of LNG and compressed natural gas (CNG) to 21.33 Bcf/d of natural gas, or 7.79 trillion cubic feet per year.

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