On August 30, 2017, the New York State Department of Environmental Conservation (“NYSDEC”) issued a two-page letter (signed by the General Counsel of NYSDEC), which denies “conditionally” a water quality certification under §401 of the Federal Clean Water Act (“CWA”). As with the two prior denials (noted below), this denial has the effect of preventing construction of the eight-mile Valley Lateral Pipeline, which is part of the Millennium Pipeline intended to serve the 680 MW gas-fired CPV Valley Energy Center in Wayawanda, Orange County, NY, currently under construction. The “conditional” denial becomes unconditional in the event Federal Energy Regulatory Commission (“FERC”) does not grant NYSDEC’s petition to FERC filed last month to reconsider its approval of the line in light of “new law,” namely the recent D.C. Circuit decision Sierra Club v. FERC, 2017 WL 3597014 (D.C. Cir., August 22, 2017) (“Sierra Club”).
The Valley Lateral §401 denial follows the NYSDEC denials of §401 water quality certifications for the Williams Constitution Pipeline (in April 2016) and for the NFG Midstream Northern Access Pipeline (in April 2017). The §401 denial for Constitution was recently affirmed by the U.S. Court of Appeals for the 2d Circuit. NFG Midstream has appealed its denial to the 2d Circuit. In the Constitution case, the denial was based on the alleged failure of the project sponsors to provide adequate information to allow NYSDEC to determine the magnitude of impacts on State water quality resources (primarily small streams). In the Northern Access case, the denial was based on the information provided by the sponsors, from which NYSDEC determined that the impacts on water resources (principally streams and wetlands) violated State water quality standards. In both cases, FERC had already concluded its comprehensive environmental analysis required by the National Environmental Policy Act (“NEPA”) and, finding no environmental impacts that could not be satisfactorily mitigated, issued certificates for the projects. The NYSDEC denials halted both projects, at least for now, notwithstanding the FERC approvals.
The Valley Lateral denial differs radically from the prior two. Instead of being based on impacts to State water quality resources, the §401 denial was based on the alleged inadequacy of FERC’s NEPA analysis of downstream air quality impacts from the natural gas to be delivered by the pipeline. NYSDEC supported this rational by citing to Sierra Club, which held that FERC was obligated to review potential downstream air quality impacts due to emissions from gas-fired power plants served by the proposed pipeline.
Without regard to whether, and how, Sierra Club affects FERC’s analysis of the Valley Lateral project, the dictates of Sierra Club clearly have nothing to do with New York’s right under the Clean Water Act to review a pipeline 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 stand in judgment of FERC’s NEPA analysis. That is the province of FERC and the U.S. Court of Appeals. Beyond that, the NYSDEC’s action here is even less sustainable because all the required air permits for CPV’s Valley Energy Center have already been granted by NYSDEC! Ironically, there is no question that Valley Energy Center coming on line with natural gas fuel would reduce GHG emissions overall because it would displace current coal-fired resources.
It is obvious that these conclusions are not close calls by any stretch, so one must now assume that NYSDEC will go to great lengths to place roadblocks in the way of natural gas pipelines. Considering both the importance and the late-stage construction of the CPV Valley Energy Center, and wide support for that project within New York, the tactic of using an eight mile pipeline lateral to block the CPV project represents conduct which can easily be described as “arbitrary and capricious”—the standard by which §401 denials are judged on appeal. Importantly, those who are viscerally cheering this move may end up ruing the day, since this move involving an 8-mile pipeline in rural New York may bring to an end all States’ authority to veto FERC jurisdictional pipelines. It could also have a chilling effect on those seeking to invest in New York infrastructure—energy-related or not—because it’s difficult to know what the rules are.
The fundamental question is what to do about it, particularly given the urgency of the matter. While the chances of overturning the denial on appeal are very high, the time required to process an appeal in the 2d Circuit is long – 2 years in the case of Constitution. The best, and perhaps the only remedy for the Valley Energy Center, is through the FERC. It is within FERC’s jurisdiction to find that NYSDEC has waived its right to review the project under §401. See Millennium Pipeline Co. vs. Seggos, No. 16-1415 (D.C. Cir., June 23, 2017). The FERC could also disregard this “conditional denial” (there is no such thing under §401) and issue a Notice to Proceed to Millennium for the Valley Lateral, which would force NYSDEC, and/or other project opponents, to challenge FERC’s Notice. There may be other avenues for overcoming the defective denial, but it would certainly seem in FERC’s interest to move quickly to counter this drastic move by the NYSDEC.
As noted in the blog post referenced in footnote 1 below, the situation which has evolved under §401—and which has persisted for more than a decade since the Islander East cases—cries out for a legislative solution. This most recent move by NYSDEC should also provide a catalyst for Congress to take steps to correct the “State veto” problem afflicting pipeline infrastructure build-out. The course of amending the CWA to harmonize the review provision with those set forth in the Federal Coastal Zone Management Act (“CZMA”) is one way to go. Such an amendment would replace the very narrow “arbitrary and capricious” standard which governs review of §401 denials in the U.S. Courts of Appeals 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 (as noted in the Constitution blog) such an amendment would take a lot of effort to achieve, the importance of rectifying this persistent Federal-State conflict is very high and the initiative seems well worth the effort.
 See the recent August 2017 Blank Rome blog post “Constitution Pipeline: The 2d Circuit Reaffirms a State’s Right to Veto a FERC-Approved Interstate Pipeline Project.”
 See the recent September 2017 Blank Rome blog post “D.C. Circuit Significantly Expands the Scope of FERC Pipeline Reviews.”