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FERC holds upper hand on gas pipelines, but showdown with states nears

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FERC holds upper hand on gas pipelines, but showdown with states nears

A showdownover gas pipeline approvals looms between FERC authority granted by the NaturalGas Act and the state permitting requirements of the Clean Water Act, an energyindustry lawyer warned.

"Ithink FERC should and will have the upper hand," Steptoe & Johnson PLLC's Kurt Krieger said in an email,but the fight willnot be easy.

Recentdevelopments indicate that the showdown is not far away. On April 22, New York Constitution Pipeline Co.LLC's application for a Clean Water Act Section 401 certificate for its 124-milenatural gas project that would run from the Marcellus Shale in Pennsylvania intoNew York. The Department of Environmental Conservation said Constitution had failedto provide a proper analysis for most of the project's 250 water crossings in thestate. Constitution said it would challenge the legality of the New York decision.

Krieger,who represents natural gas midstream, distribution and pipeline companies at FERCand before state utility commissions, has watchedthe conflict develop. Certain states and local governments use federal environmentallaw to fight off gas infrastructure that FERC has approved. FERC tries to suppresssuch challenges in every certificate it issues to pipelines and LNG export terminals.

Stateor local permits "must be consistent with the conditions of this certificate,"reads boilerplate language Krieger alluded to in the certificates. "The commissionencourages cooperation between interstate pipelines and local authorities. However,this does not mean that state and local agencies, through the application of stateor local laws, may prohibit or unreasonably delay the construction or operationof facilities approved by this commission."

The conflicthas not been thoroughly explored in federal court, but Krieger listed several courtdecisions that might be relevant to any legalaction stemming from the New York decision on Constitution.

InJuly 2013, the U.S. Court of Appeals for the District of Columbia Circuit granteda request by Dominion Resources Inc.'sDominion Transmission Inc.to make the Maryland Department of the Environment move on an air quality permitfor a gas compressor station that the regulator had refused to process. (D.C. CircuitNo. 13-1019)

In October2013, in a case connected to the same project, the U.S. District Court for the Districtof Maryland nullified the effect of local laws in Myersville, Md., that the townhoped would prevent the construction of the compressor station. The station waspart of a FERC-approved interstate gas transportation project. The court found thatFERC had reviewed water, soil and other environmental issues under the Natural GasAct, pre-empting the local laws. The court also cited the FERC boilerplate language.(Civil Action No. RDB-13-0338)

But FERCauthority does not pre-empt acts required by other federal statutes, Krieger said.The Natural Gas Act lists an exception that says none of its requirements affectthe rights of states under the CleanWater Act. In February 2013, a U.S. District Court in Pennsylvania grantedKinder Morgan Inc.'s an emergencypreliminary injunction to save it from the costs of a construction delay on itsNortheast Upgrade pipeline project. The delay would have come from a review by Pennsylvania'sEnvironmental Hearing Board, requested by an environmental group, of permits issuedby the state Department of Environmental Protection in line with a FERC approvalorder.

The DistrictCourt noted the Natural Gas Act's exception for the Clean Water Act but said theDepartment of Environmental Protection is the state agency in charge of Clean WaterAct certifications, not the Environmental Hearing Board, so it was the Departmentof Environmental Protection's order that triggered judicial review.

The courtreferred to a case involvingIslander East Pipeline Co. LLC in which the U.S. Court of Appeals for the 2nd Circuitin 2008 refused to review a decision by Connecticut to reject a water quality certificationfor a pipeline project, which was a joint venture of KeySpan Corp. and SpectraEnergy Corp. The 2nd Circuit said Congress "wholly preempted andcompletely federalized the area of natural gas regulation" with the NaturalGas Act, but "Congress did not, however, thereby supersede any other federalstatutory requirements, such as Section 401 of the [Clean Water Act]." The2nd Circuit cited earlier decisions, one involving National Fuel Gas Co., which Krieger said could come up inthe Constitution situation. (U.S. District Court for the Middle Districtof Pennsylvania No. 3:13-CV-46)

ConstitutionPipeline is owned by subsidiaries of WilliamsPartners LP, Cabot Oil& Gas Corp., PiedmontNatural Gas Co. Inc. and WGLHoldings Inc. The developers would like to put the pipeline in servicein the second half of 2017.