Text On June 6, 2014, the US Court of Appeals for the DC Circuit held that the Federal Energy Regulatory Commission (“FERC” or “Commission”) violated the National Environmental Policy Act (“NEPA”) by failing to address the cumulative impacts when it issued a certificate of public convenience and necessity for the Northeast Project, an upgrade project for a 40-mile segment of a natural gas pipeline. The court found that FERC should have considered the Northeast Project in conjunction with three other upgrade projects in other locations along the same pipeline that were under separate FERC review. The court also held that FERC impermissibly segmented its NEPA review of the projects.This decision is likely to result in more expansive NEPA review processes for all existing and future pipeline projects, thereby delaying the FERC approval process and increasing the number of related pipeline projects that are reviewed cumulatively.

In Delaware Riverkeeper Network v. Federal Energy Regulatory Commission, DC Cir. No. 13-1015 (June 6, 2014), the court held that the Commission violated NEPA when it reviewed a pipeline improvement project separately from three other projects that together upgraded a large portion of continuous pipeline. Under NEPA, federal agencies must consider the environmental effects of a proposed major action, like pipeline construction, before allowing it to proceed. The agency must issue an environmental assessment (“EA”) finding either that the project will result in no significant impact or that a more intensive environmental impact statement (“EIS”) is necessary to examine environmental impacts. Council on Environmental Quality (“CEQ”) regulations mandate FERC to consider the cumulative effect of “connected,” “cumulative” and “similar” actions in the EA.2

Between 2010 and 2011, the Tennessee Gas Pipeline Company (“Tennessee Gas”) applied to FERC for certification of four projects designed to upgrade and increase the capacity of approximately 200 miles of continuous pipeline. The third project, called the Northeast Project, was the focus of the case before the court. FERC reviewed the Northeast Project, found no significant impact and issued an order approving the project. Several environmental groups, including the Delaware Riverkeeper Network, petitioned for review of the FERC certificate, arguing that the Commission had impermissibly segmented its review.   The Commission denied Riverkeeper’s request for a rehearing because it maintained that “each project is a stand-alone project and designed to provide contracted-for volumes of gas to different customers within different timeframes.” The environmental groups then filed a petition for review of the order with the US Court of Appeals for the DC Circuit.

Petitioners argued that the Northeast Project and the other three projects were “connected, contemporaneous, closely related, and interdependent,” and that FERC violated NEPA in failing to address them cumulatively. FERC contended that it was not required to look at the Northeast Project in conjunction with the three other upgrade projects because the four factors necessary to show that physically connected projects can be analyzed separately under NEPA were all satisfied. Those four factors include whether the project: “(1) has logical termini, [or rational end points]; (2) has substantial independent utility; (3) does not foreclose the opportunity to consider alternatives; and (4) does not irretrievably commit federal funds for closely related projects.”The court disagreed, finding that the Northeast Project did not have a logical terminus or substantial independent utility.

FERC asserted that the Northeast Project is no more or less logical a terminus than any other. The court held that FERC’s reasoning “will not do” because it would allow sections of pipeline in any arbitrary increment — one-foot sections, for example — to be reviewed separately. Instead, the court found that  the Northeast Project does not have a logical terminus because it is physically interdependent with the  rest of the pipeline and has no physical offshoots. Next, FERC asserted that the Northeast Project had substantial independent utility because Tennessee Gas secured new customer contracts for the increase in capacity that the project would create to meet specific customer demand. However, the court reasoned that the Northeast Project was financially interdependent with the three other projects because they decreased the cost of the Northeast Project. Additionally, the court reasoned that there was no   substantial independent utility because the projects were functionally interdependent — gas cannot be taken from only the portion of pipeline upgraded in the Northeast Project; instead it must pass through the entire line before it reaches the consumer.

Tennessee Gas and FERC also contended that it was appropriate to review the proposed projects separately because the applications for certification were filed at different times. The court disagreed, emphasizing that the projects were temporally connected because one project had begun and two other applications were pending by the time FERC was considering the Northeast Project. Notably, the court indicated that if the projects had been separated by more time, each stage of construction may have been able to function on its own, and then the projects might have been disconnected enough to be reviewed separately. The court remanded the case to FERC for further consideration of the segmentation and cumulative impacts issues. FERC will likely need to publish a revised EA (and perhaps complete an EIS) for the Northeast Project and hold a new notice-and-comment period before reissuing its approval.

This case has major implications for both new pipeline projects and projects to expand or update existing pipelines. It is likely to make the FERC approval process more extensive, in that FERC has to consider projects that affect the same linear pipeline cumulatively. In turn, this stricter scrutiny of cumulative environmental effects will likely increase the time it takes FERC to review applications and will likely increase the number of more in-depth EIS documents prepared by FERC to evaluate pipeline projects.