As previously reported on PipelineLaw, the ongoing controversy over an April 2016 decision by the New York Department of Environmental Conservation (NYDEC or the Department) to deny a Clean Water Act (CWA) water quality certification to Constitution Pipeline Company (Constitution or the Company) for its interstate natural gas pipeline project in Pennsylvania and New York highlights tensions between federal and state oversight of such projects. In the latest chapter of this controversy, the Second Circuit recently denied Constitution’s petition for review of the NYDEC decision, concluding that (1) the Court lacked jurisdiction over the Company’s claims to the extent that they challenged the timeliness of the decision; and (2) the Department acted within its statutory authority in denying the certification, and its denial was not arbitrary or capricious.

The background of the Second Circuit case is detailed in the Court’s decision and explained in our previous post. The case is significant because it affirms a state agency’s use of its water quality certification authority to effectively veto an interstate pipeline project that has “secured approval from a host of other federal and state agencies” and is otherwise subject to federal oversight and permitting. See Constitution Pipeline Company LLC v. NYDEC et al., Case No. 16-1568 (2^nd Cir. Aug. 18, 2017) (Constitution), at 23 (citing CWA legislative history that “Congress intended that the states would retain the power to block, for environmental reasons, local water projects that might otherwise win federal approval”). In the Court’s opinion, however, it also clarified the following points of interest to natural gas pipeline project proponents:

• Jurisdiction Over CWA Waiver Arguments. CWA Section 401 requires an applicant for a federal permit (in Constitution’s case, a CWA Section 404 dredge and fill permit) to conduct activities that may result in discharges to jurisdictional waters to obtain certification from the relevant state agency that the discharges will comply with the State’s water quality standards. 33 U.S.C. § 1341(a)(1). If the state 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 the request,” the certification requirement is waived. Id.
  
  In determining whether NYDEC’s many delays in deciding on Constitution’s request for certification amounted to a waiver of the certification requirement, the Court first looked to the text of the Natural Gas Act (NGA) to discern whether it had jurisdiction over the claim. The NGA provides, in relevant part, that the federal Court of Appeals for the circuit in which a natural gas pipeline facility is proposed to be constructed has jurisdiction over any state agency decision to “deny. . . any . . . approval” required under federal law for the project. 15 U.S.C. § 717r(d)(1). On the other hand, the NGA provides for “original and exclusive” jurisdiction in the D.C. Circuit Court of Appeals for the review of an alleged “failure to act” by a state agency in proceedings related to permits required under federal law. 15 U.S.C. § 717r(d)(2). Despite the ambiguity in these provisions, the Court held that Constitution’s waiver argument amounted to a “failure-to-act claim” over which only the D.C. Circuit had jurisdiction in accordance with NGA § 717r(d)(2).
  
  This holding stands in contrast to the D.C. Circuit’s recent decision in a similar case brought under NGA § 717r(d)(2) to challenge NYDEC’s delay in issuing a water quality certification for the construction of the Millenium pipeline project. In that case, the Court ruled that even if the Department’s lengthy delays in processing the project’s certification request did constitute a waiver under the CWA, there was no cognizable injury to Millenium that would give it standing to challenge the delays in court. Rather, according to the D.C. Circuit, the Company could seek to remedy any injury from the delay by presenting evidence of waiver directly to the Federal Energy Regulatory Commission (FERC) to seek authorization to begin construction of the project. There some thus some tension between the two cases on whether FERC or the D.C. Circuit is the appropriate forum for a FERC-regulated pipeline project to challenge state agency delay in issuing CWA water quality certification.

• No Preemption of State Agency Decisions. The Court rejected the argument that NYDEC’s jurisdiction to review and, in effect, veto FERC’s determinations under the National Environmental Policy Act (NEPA) was preempted by federal law. As the lead agency for conducting NEPA review of Constitution’s proposed project, FERC prepared Draft and Final Environmental Impact Statements (DEIS and FEIS, respectively) concluding that trenchless crossings of many state waterbodies affected by the pipeline were “impractical” and that impacts associated with alternative crossing methods were considered “minimal.” The Court disagreed with the Company’s position that NYDEC’s contrary determination—i.e. that the numerous waterbody crossings in New York would violate state water quality standards—was preempted by FERC’s role under NEPA. In doing so, the Court observed that NEPA imposes procedural requirements for environmental review rather than substantive standards, leaving room for a state agency to impose its own environmental requirements as authorized under relevant law. Further, the Court quoted the NGA “savings” provision, which saves from preemption “the rights of States” under the CWA and a few other statutes. 15 U.S.C. § 717r(d)(2).

• State Agency Authority to Consider Route Alternatives. The Court rejected Constitution’s arguments that NYDEC’s multiple demands for information with regard to possible alternative routes for the planned pipeline exceeded the Department’s authority. Constitution had argued that decisions about route alternatives were within FERC’s exclusive jurisdiction and outside of NYDEC’s CWA Section 401 jurisdiction. The court dismissed this argument summarily, however, stating NYDEC’s consideration of alternative routes with potentially less impact on state waterbodies was “plainly” within the state’s authority. Constitution at 23.

• Deference to State Agency Certification Decisions. Finally, the Court explained the deferential nature of its review, rejecting Constitution’s claims that the Department’s denial of certification based upon insufficient information about water quality impacts was arbitrary and capricious or an abuse of discretion. Instead of focusing on the three-year-plus dialogue between Constitution and NYDEC, the copious amounts of environmental information supplied by the Company in response to the Department’s requests, and NYDEC’s representation to Constitution in 2015 that it “had everything it needed” to consider the project’s application, the Court instead stated that the Company “persistently refused to provide information” regarding route alternatives or site-by-site information as to the feasibility of trenchless crossing methods for streams less than 30 feet wide. at 26.

Constitution’s related district court case challenging the application of NYDEC water quality-related permitting requirements to the project was also dismissed earlier this year, in March 2017. It remains to be seen what the Company’s next steps will be and how these decisions impact the fate of the proposed Constitution pipeline project.