On August 15, 2007, Judge Stefan Underhill of the United States District Court for the District of Connecticut set aside the ruling by the Secretary of Commerce (Secretary) that the Islander East Pipeline project is consistent with the Coastal Zone Management Act (CZMA), which in turn had overruled the objection of the State of Connecticut and the Connecticut Department of Environmental Protection (collectively, Connecticut). “Ruling on Cross-Motions for Summary Judgment,” State of Connecticut v. United Stated Department of Commerce (the Ruling). Islander East is a 45-mile, 24-inch gas pipeline with capacity of 260,000 Dth per day proposed to connect Algonquin Gas Transmission Company at a point in North Haven, Connecticut with a terminus in Suffolk County, New York. The project was originally proposed to go into service in 2003, but has been stymied by its failure to obtain certain needed permits in the face of consistent opposition from Connecticut. Islander East has announced its intention to appeal the Ruling. Whether or not the project can survive this latest permitting setback, the Ruling has importance for all pipeline project developers.

As planned, Islander East includes 22 miles of pipeline beneath Long Island Sound. Islander East proposes to lay the pipeline by horizontal directional drilling for 4,000 feet from a point on the Connecticut shore to an exit point in the Sound. From there, the pipe will rest in a 1.1 mile dredged trench and continue under waters of greater than 20-foot depth for the remainder of its length. Islander East will bury the underwater pipeline with sand and gravel using a subsea plow.

The portion of the Connecticut coast in which Islander East proposes to be sited—the “Thimble Islands”—is environmentally sensitive. The pipeline would cross commercial shellfish habitats, production areas for clams and oysters, which are of considerable economic and environmental importance to Connecticut. Connecticut’s refusal to certify the project as consistent with the CZMA is grounded in these concerns.

The CZMA

Should a state elect to participate in the CZMA, the state develops and implements a coastal management plan. If the Secretary approves the plan, the state becomes eligible to receive federal monies toward implementing the plan. This approval also triggers a “consistency requirement.”1 As relevant here, this means that a federal agency cannot grant authorization to an applicant unless the applicant shows that the proposal is consistent with the state’s plan. An “applicant for a required Federal license or permit to conduct an activity, in or outside of the coastal zone, affecting any land or water use or natural resource of the coastal zone of [a participating] state [must certify] that the proposed activity complies with the enforceable policies of the state’s approved program and that such activity will be conducted in a manner consistent with the program.”2 A prerequisite for the grant of the federal license (in this case a certificate from the Federal Energy Regulatory Commission under the Natural Gas Act and a permit from the United States Army Corps of Engineers) is that the state (or the state’s designated agency) must concur with the applicant’s certification.3

Should the state not concur, the applicant may appeal to the Secretary who will reverse the refusal to concur if he or she finds the proposal to be “consistent with the objectives of this chapter or is otherwise necessary in the interest of national security.”4 The process of appeal to the Secretary can constrain a State from promoting its parochial interests over national needs.

Under the regulations, to show that a federal license or permit activity is “consistent with the objectives or purposes of the Act,” the application must satisfy three requirements: 

  • [t]he activity must further the national interest as [set out in the CZMA, 16 U.S.C. §§ 1451 and 1452] in a significant or substantial manner; 
  • [t]he national interest furthered by the activity outweighs the activity's adverse coastal effects, when those effects are considered separately or cumulatively[; and] 
  • [t]here is no reasonable alternative available which would permit the activity to be conducted in a manner consistent with the enforceable policies of the management program.5

Contrary to Connecticut’s view, the Secretary held that Islander East satisfied these three requirements.

The Ruling

The Ruling reversed the Secretary’s decision, concluding that the Islander East project failed to satisfy the second and third of the above requirements. The Ruling advanced a host of reasons, procedural and substantive, for setting aside the Secretary’s decision. The perceived failures in the Secretary’s decision about Islander East illuminate the types of findings by the Secretary of CZMA consistency necessary to survive judicial review.

The only area where the Ruling upheld the Secretary concerned the first factor, whether the proposal will further the national interest in a significant or substantial manner. The court agreed with the Secretary that this finding is a “relatively easy” matter.6 Congress intended the CZMA to encompass both preservation and development objectives. The Ruling agreed that Islander East “develops” the coastal zone by using the bottom of the Sound (a “coastal resource” in the “coastal zone”) for the transportation of natural gas to be used in energy facilities. (Congress intended “develop” in the CZMA to encompass commercial improvement; the Ruling rejected Connecticut’s position that the term “must have a natural, conservationist meaning.”7) Furthermore, the Secretary was correct to conclude that Islander East developed the coastal zone in a “substantial or significant manner,” rejecting Connecticut’s contention that the Secretary had not articulated a sufficient basis for his conclusion. “[T]he pipeline span[s] two states, . . . affect[s] hundreds of thousands of people in major metropolitan areas, and . . . develop[s] the nation’s energy infrastructure.”8

In concluding that Islander East’s adverse effects, whether considered cumulatively or separately, did not outweigh the national interest to be furthered, the Secretary examined: impact on water quality, specifically the increased turbidity from construction and the release of drilling fluids, sometimes at very high pressure; shellfish, specifically habitat destruction and direct mortality from construction and 5.5 acres of beds becoming unsuitable for commercial shellfishing as a result of using gravel for backfilling; and possible damage to two wetland areas that Connecticut had raised as a concern. The Secretary, relying on evidence such as the Final Environmental Impact Statement (FEIS) and Islander East’s proposed construction techniques and contingency plan and mitigation measures, found all these effects to be limited in terms of area and duration. Also, the Secretary considered Islander East’s “cumulative effects” or whether Islander East will have effects “ ‘when added to the baseline of other past, present and reasonably foreseeable future activities occurring in the area of, and adjacent to, the coastal zone’ of the area in which the objected-to activity has taken place.”9

The Ruling concluded, however, that the Secretary’s finding that the national interest in the project outweighed Islander East’s adverse impacts was arbitrary and capricious. First, in resolving conflicting estimates of acres of waters that will be affected by the construction (Islander East: 1,121 versus Connecticut: 3,700), the Secretary found, without explanation, Islander East’s estimates to be “more credible.” Absent explanation, the Secretary did not establish the requisite “reasoned connection between his conclusion and any record data.” Additionally, as the Secretary had not heard testimony, relying instead on a paper record, he could not have judged witness credibility.10

The conclusion that adverse effects to shellfish beds will be temporary is flawed because it relied on a statement in the FEIS that indicated that recovery of shellfish beds will take at least the time for a clam or oyster to reach marketable size: three to five years. This, according to the Ruling, does not support the conclusion that the beds will recover in the near term or at all. The number is a floor not a ceiling and it encompasses the possibility that the beds will take longer to recover or will never recover.11

Additionally, the finding that anchor scars could recover within a year or several years did not support the conclusion that this effect will be limited in duration. The finding says nothing definitive about the duration of the anchor scars and does not exclude the possibility that recovery will take much longer. As a result, the necessary reasoned connection between limited impacts and the conclusion that national interests outweigh the adverse impacts is missing.12

Also, the Ruling finds that the Secretary “failed to address an important aspect of the problem”: oysters. According to the Ruling, the Secretary, even though he acknowledged that oysters never returned following Iroquois’s construction in 1991, “never cites scientific data predicting that oysters will return to the Sound bottom after construction, or even that oysters will likely return. . . . [The Secretary] provides no record support for the conclusion that the damage to oysters would be temporary.” The Ruling faulted the Secretary for referring to “organisms,” “shellfish,” or “clams” but not oysters in concluding that the Sound bottom will recover.13

The Ruling found other “miscellaneous problems” to undercut the Secretary’s balancing effort. Among them: (a) the conclusion that damage to wetlands will be mitigated by monitoring— mitigation requires more than collection of data and there was no evidence that the wetlands will, in fact, be restored; and (b) the Secretary’s repeated use of the word “could” indicating that the Secretary’s conclusions are “vague and indeterminate.”14

Turning to the third CZMA requirement, the Secretary had concluded that there is no reasonable alternative to the project – a conclusion Connecticut did not challenged. Nevertheless, the Ruling also found this part of the Secretary’s decision to be arbitrary and capricious. Noting that the CZMA requires that energy projects be located in or adjacent to existing development, the Ruling pointed to the Iroquois system which also spans the Sound and has the potential to include the Islander East project. The Secretary dismissed Iroquois as an alternative on the grounds that Islander East could not compel Iroquois to “piggyback” the Islander East project (meaning either the expansion of Iroquois capacity or Iroquois sharing its right-of-way with Islander East). The Ruling noted that there is no evidence in the record that Islander East approached Iroquois for this purpose.15

Lastly, the Ruling faults the Secretary for a procedural error. Following the soliciting of comments from 16 federal agencies, the Secretary agreed to Islander East’s request for a remand to allow Connecticut to reconsider its objection in light of proposed installation modifications. Although the Secretary published notice of the remand in the Federal Register, the notice did not set out the details of the modifications. Nor did the Secretary describe the modifications to the agencies that had already commented. According to the Ruling, the Secretary’s failure to give notice of the modifications is material because the Secretary’s decision relies heavily on the new information submitted by Islander East.16

Conclusion

An applicant for an energy project that will affect the “coastal zone” of a CZMA-participating state correctly views an appeal to the Secretary of Commerce of a state’s objection as procedural protection from the state’s pursuit of its parochial interests at the cost of the nation’s energy needs. But, for that procedural protection to function effectively, the Secretary’s decision must be able to withstand, in words quoted by Judge Underhill “ ‘a thorough, probing, in-depth review’ ” under the arbitrary and capricious standard.

The Ruling illustrates potential pitfalls in a decision by the Secretary to override a State’s CZMA determination. To avoid a similar fate, any project sponsor seeking to overcome a State’s adverse determination must prepare as strong a record as possible to serve as the basis for a favorable decision by the Secretary. The Secretary’s decision that the national interest in the project outweighs adverse coastal effects should be grounded on concrete facts that, in turn, rest on substantial record evidence. And, if there is a potential “alternative”, to the project, the applicant needs to approach the owner of the alternative and secure an actual refusal to enlarge, extend or otherwise modify those facilities, or demonstrate some other reason why a reasonable alternative is not available. The mere right of an alternative’s owner to refuse will not support a “no reasonable alternative” finding. Finally, the applicant should take its own affirmative steps to ensure that all interested parties, governmental as well as private, are kept current on any modifications to the project. The applicant cannot simply assume that the Secretary will satisfactorily meet all applicable notice requirements.