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Stalled gas pipeline projects unlikely to get relief under EPA rule, experts say

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Stalled gas pipeline projects unlikely to get relief under EPA rule, experts say

Even as industry welcomes the U.S. Environmental Protection Agency's latest proposal aimed at preventing states from blocking infrastructure projects, experts say that the policy is unlikely to give gas pipelines the boost they want.

The Aug. 9 rule-making proposal — the latest volley in a battle between states and the Trump administration over lengthy delays to gas projects — would limit state's authority under the Clean Water Act to block pipeline construction if a project does not meet state standards. However, while the policy would likely shake up federal-state dynamics on infrastructure projects and appears destined for lengthy court battles, the proposed EPA rule is unlikely to prevent states from denying pipeline developers critical water quality permits, several lawyers and energy analysts said.

"There is a plausible case to be made that this decision and that this proposed rule is more of a victory for style over substance in terms of being able to effectively rebut recalcitrant state governments that are not interested in permitting new natural gas pipeline," said Rob Rains, an energy industry analyst at Washington Analysis LLC.

The EPA has said its new legal interpretation aims to shore up federal agencies' ability to move projects forward and prevent states from using their authority under Section 401 of the Clean Water Act to stall construction.

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"Our proposal is intended to help ensure that states adhere to the statutory language and intent of Clean Water Act," EPA Administrator Andrew Wheeler said of the new measure.
Source: Associated Press

Through the new guidance and the proposed rule, the EPA is advising states and tribes to adhere to the plain language of the Clean Water Act, which to the EPA means that they have to decide whether to issue a project a water quality certification in one year or less, regardless of extenuating circumstances often cited by state regulators.

That review period begins once a state regulator receives a "certification request" instead of a complete application from a project developer, under the EPA's interpretation, and the agency makes clear a full year to act on a certification request would not be guaranteed.

The EPA also says state regulators should only consider potential impacts on water quality, not factors related to other environmental concerns.

By limiting what states are allowed to consider during water certification reviews, the rule puts those federal agencies in a position to overrule states and invalidate their certification denials, according to Armando Benincasa, an attorney at Steptoe & Johnson PLLC who focuses on energy and environmental law.

"Currently ... if the state were to deny a 401 certification, the project proponent would have to file some sort of a challenge in the court of appeals," Benincasa said. "Under the new rule, the state would actually have to initiate an action against a federal agency ... basically overturning a state decision on the 401 certification."

"The fact that the agency is basically looking toward other federal permitting agencies to basically have oversight over the 401 certification process is a big change," he said.

In its guidance, the EPA recommends that FERC and the Army Corps of Engineers exercise its authority in a way that helps speed up projects and limits states' ability to delay certification.

Little relief for projects

The rule could make it incrementally easier for developers to sue states over unfavorable decisions on Section 401 applications, but it would not cut state politics out of the review process, said Katie Bays, an energy analyst and co-founder of research and consulting firm Sandhill Strategy.

"Superficially, you would say that more favorable guidance from the EPA strengthens the legal position of pipeline projects and LNG projects that have struggled to obtain 401 certificates from states. ... That's the hope and that's what the administration is attempting to do here," Bays said. "However, because the guidance does not remove the ability of the states to reject an application for a water quality certificate, they can still do that."

Rains, too, said the scope of what the EPA can accomplish through regulation will remain limited, particularly if Congress is unwilling to change the underlying law.

"Yes, the EPA can initiate this rulemaking. They can tighten up these requirements," he said. "But there is already this prevailing dynamic where the states get a say in this. If Massachusetts or New Jersey or New York or whomever — Virginia — don't want a project going through, then they have tools at their disposal. It's not too complicated."

The EPA's proposed rule could further politicize the Section 401 issue, Bays said. The Trump administration is taking what she described as a combative position, while some companies are seeking a less confrontational way through the state-developer impasse. The EPA proposal could put government and industry on different paths.

"Companies are aware that the 401 is not the only permit that you need from the state," Bays said. "If you go to war with the state over the 401, you put yourself in a very acrimonious position with the regulator, when you are better off trying to cultivate a collaborative relationship with the regulator and respond to their concerns around the 401."

The one-year time limit in the EPA's proposed rule could also backfire for pipeline developers, analysts and attorneys said.

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"If a state has to make a decision before it has the information it needs to make that affirmative determination, then the state has to deny, and so if the EPA starts the clock earlier and encourages other agencies to shorten the time periods ... what we would expect to see there is a lot more denials," Nathan Matthews, an attorney in Sierra Club's environmental law program, said.

The denials would be without prejudice, so applicants could gather additional information and reapply, but Matthews argued it would be easier to simply start the clock once the major project details are set.

The EPA appears to have anticipated that by suggesting in its guidance that the information provided to federal agencies should be sufficient for the purpose of completing a Section 401 review, Benincasa said.

How did the situation happen?

Major lines have been stalled or blocked on state authority in recent years, including the Williams Cos. Inc.-led Constitution Pipeline Co. LLC and the PennEast Pipeline Co. LLC systems, which would deliver natural gas from Marcellus Shale fields to New Jersey, New York and eastern Pennsylvania. New York has also blocked National Fuel Gas Co.'s Northern Access and Williams' Northeast Supply Enhancement pipelines, leading Consolidated Edison Inc. and National Grid Inc. to place moratoriums on new downstate gas hookups.

At the heart of the issue is Section 401 of the Clean Water Act, which gives states authority to review whether federally-approved interstate infrastructure complies with measures intended to protect local water quality. If the state refuses to certify a project, the federal permitting agency — in most cases the Federal Energy Regulatory Commission or the Army Corps of Engineers — cannot issue final approval.

Congress included the provision in the Clean Water Act to make sure states had a role in approving infrastructure that could compromise water sources. But lawmakers also stipulated that they should complete reviews within a reasonable amount of time, not to exceed a year, or else waive their authority and surrender decision-making to federal agencies.

The certification process has extended well beyond one year in several recent cases, prompting accusations that liberal governors are abusing their Section 401 authority to scuttle fossil fuel projects that run counter to their environmental and climate policies.

"There are two things that are clear: One is that it is going to be harder for the states and tribes to tag on conditions and take a long time to review projects for 401 certification," Mark Ryan, a former EPA attorney who specialized in Clean Water Act enforcement and permitting for more than two decades before entering private practice, said. "The other thing that's clear is that there is going to be a bunch of litigation."

Rule may conflict with Supreme Court precedent

Bays said the best hope for some pipeline projects like Constitution lies elsewhere specifically in a U.S. appeals court case involving a hydropower project that pitted the Hoopa Valley Tribe against FERC.

There, the U.S. Court of Appeals for the District of Columbia Circuit found that California and Oregon could not restart the clock on the one-year deadline by asking a hydroelectric project developer to repeatedly resubmit its water quality application. The states therefore waived their review authority.

Some analysts believe the decision could make it harder for states to use their Section 401 authority to thwart FERC's gas pipeline project approvals. FERC initially denied Constitution's petition for a declaratory order stating New York waived its water review authority, but FERC revisited the issue after the Hoopa Valley decision.

The EPA's proposed rule appears to incorporate the Hoopa Valley decision and other recent case law, Benincasa said. But he said that the agency's overarching position may not be consistent with a 1994 Supreme Court decision.

In the 1994 case, the majority sided with Washington regulators, who imposed flow conditions on a Section 401 certification for a hydroelectric project. Even though flow restriction did not directly impact water quality, the court found the state had the authority to take steps to protect a natural resource: its salmon population.

The decision reflects the view that the law contains "ambiguity and was subject to further interpretation by the states," and "the scope of a review by the states for Section 401 certification can be broader than the actual language contained in the Clean Water Act," Benincasa added.

Ryan speculated that the administration may have crafted the rule in anticipation of a legal challenge, with the goal of bringing a case before the Supreme Court. He notes that EPA's proposed rule references the 1994 case, and its guidance reflects Judge Clarence Thomas' dissent.

But in his view, EPA suggesting in its proposed rule that the Supreme Court was wrong is "a bit of a Hail Mary."

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