In 2017 there has been brisk activity around (1) states exercising their powers under section 401 of the Clean Water Act (CWA) to potentially thwart the construction of interstate natural gas pipelines; and (2) debate about the extent that greenhouse gas emissions (GHGs) must be examined in natural gas pipeline certificate proceedings under section 7 of the Natural Gas Act (NGA). The scope and consequences of these activities on natural gas companies attempting to build pipeline infrastructure continue to evolve.

On September 15, 2017, the Federal Energy Regulatory Commission (FERC) issued an important declaratory order in the latest skirmish over a state’s power under section 401 of the CWA. The commission declared that the New York State Department of Environmental Conservation (New York DEC) failed to act within the one-year timeframe required by the CWA, and therefore waived its authority to issue or deny a water quality certification to Millennium Pipeline Company, L.L.C. (Millennium). Millennium Pipeline Company, L.L.C., 160 FERC ¶ 61,065 (2017).

By way of background, on November 13, 2015, Millennium applied for a certificate of public convenience and necessity under section 7(c) of the NGA requesting authorization to construct and operate the Valley Lateral Project in New York. On November 23, 2015, Millennium applied for a section 401 of the CWA water quality certification from New York DEC. On November 9, 2016, FERC granted the certificate conditioned on Millennium receiving all necessary authorizations, including the 401 water quality certification.

In December 2016, Millennium petitioned the US Court of Appeals for the District of Columbia Circuit (DC Circuit) alleging that the New York DEC had “unlawfully delayed action on the water quality certification and waived its authority under CWA section 401.” The DC Circuit dismissed Millennium’s petition concluding that it needed to return to the commission to “present evidence” of the New York DEC’s waiver; and if the commission denied the waiver claim, then Millennium could seek review.

On July 21, 2017, Millennium filed with the commission a Request for Notice to Proceed with Construction of the Valley Lateral Project, alleging that the New York DEC had waived its authority to issue a section 401 certification by failing to act within one year of receiving Millennium’s application. The New York DEC protested, determining it received a “complete application” from Millennium on August 31, 2016, thereby giving it until August 31, 2017, to rule on Millennium’s application. On August 30, 2017, the New York DEC gave Millennium notice that its section 401 CWA application was deemed denied.

Commission Order

The commission determined that the “crux of evaluating [Millennium’s waiver allegation] is determining the triggering event that began the one-year process. The commission’s review started with the statutory language: “Section 401 provides that water quality certification is waived when the certifying 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 such request.’” (Emphasis in original). Thus, the commission reasoned that the term “receipt” specifies the triggering event. Relying on a dictionary definition, the commission determined that “‘receipt’ is the act or process of receiving,” and that the “plain meaning of ‘after receipt of request’ is the day the agency receives a certificate application, as opposed to when the agency considers the application to be complete.” Consequently, the commission ruled that the New York DEC received the application on November 23, 2015, and the date from which the one year review period began to run.

To the extent there is any ambiguity, the commission interpreted the triggering date for the waiver provision to be the date a certification application is filed with the relevant state agency. The commission also found comfort in what it viewed as Congress’s intent in establishing the one year review period, namely to “ensure that sheer inactivity by the State . . . will not frustrate the federal application.” The commission also suggested that its hydropower regulations make clear that receipt of a certification application is the triggering event to start the one year waiver period. See 18 C.F.R. § 4.34(b)(5)(iii) (2017). Lastly, the commission pointed out that its ruling did not leave a state water quality certifying agency without remedy, noting that “[i]f a state agency concludes that a certification application does not meet CWA requirements, it can deny the application.”

What’s Next?

This order will likely be welcomed by pipeline companies, who have recently seen a number of state CWA 401 water quality certification denials, including Constitution Pipeline and National Fuel Gas Supply Corp. The order also raises the question of whether other water quality certification applicants who have received denials will file petitions for declaratory orders with the commission seeking a waiver order for failure to act within one year.

In turn, will the New York DEC seek rehearing of the commission’s waiver ruling and then seek court review of the final determination? Will other state water quality agencies seek late intervention and rehearing of the ruling? Will state water quality agencies start to use their denial “remedy” more often, even if any perceived deficiencies could have been solved within the one-year window?

Although the commission’s declaratory order provides some guidance to Millennium (and arguably other applicants and state water quality agencies), it does not resolve all the outstanding environmental issues in Millennium’s certificate proceeding. Notably, on August 31, 2017, in response to the DC Circuit’s greenhouse gas remand discussed in our client alert If a Power Plant Burns, Does a Natural Gas Pipeline Count the Smoke?, the New York DEC filed a motion advocating for the commission to “reopen the evidentiary record” to quantify GHG emissions associated with Millennium’s project. The commission has not yet ruled on the motion.