Insights

FERC Rules that New York State Waived its Authority to Issue a Water Quality Certification

Firm Thought Leadership

On September 15, 2017, the Federal Energy Regulatory Commission (FERC) issued an order finding that the New York State Department of Environmental Conservation (NYSDEC) waived its authority to issue a water quality certification under section 401 of the Clean Water Act for the Millennium Pipeline Company, L.L.C.’s (Millennium) Valley Lateral Project. The ruling will have widespread implications for infrastructure permitting and licensing, as FERC held that the one-year timeline for states to act on a water quality certification is triggered when an application is filed, not when a state agency deems the application complete. FERC’s action could reduce the regulatory uncertainty and delay that currently impacts natural gas and hydroelectric permitting processes, but the ruling also could lead more states to deny water quality certifications.

BACKGROUND

On November 13, 2015, Millennium filed an application with FERC for a certificate of public convenience and necessity pursuant to section 7 of the Natural Gas Act. Millennium sought authorization to construct and operate the Valley Lateral Project in Orange County, New York. The project comprises 7.8 miles of 16-inch-diameter pipeline and related facilities and would provide 127,200 dekatherms per day of incremental firm transportation service to the Valley Energy Center in Wawayanda, New York.

On November 9, 2016, FERC issued a certificate to Millennium authorizing the project and requiring Millennium to, among other things, file documentation evidencing that NYSDEC had issued, or waived its authority to issue, a water quality certification. Pursuant to section 401 of the Clean Water Act, federal agencies cannot issue a permit or a license for a project that will discharge into navigable waters until an applicant has secured a state water quality certification or such certification has been waived. Millennium had filed an application for a water quality certification with NYSDEC on November 23, 2015. In response to NYSDEC notices finding the application incomplete and requesting additional information, Millennium filed supplemental information with NYSDEC on August 16 and August 31, 2016.

In December 2016, Millennium petitioned the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) pursuant to section 19(d)(2) of the Natural Gas Act alleging that the NYSDEC had unlawfully delayed action on the water quality certification and waived its authority to issue the certification. Section 19(d)(2) authorizes the court to review “an alleged failure to act by a . . . State administrative agency acting pursuant to Federal law to issue, condition, or deny any permit required under Federal law.” The D.C. Circuit dismissed Millennium’s petition on procedural grounds, finding that Millennium should have presented evidence to FERC supporting its claim that NYSDEC had waived its authority to issue a certification.

In response to the D.C. Circuit’s ruling, Millennium filed with FERC a “Request for Notice to Proceed with Construction” asserting that NYSDEC had waived its authority to issue a water quality certification by failing to timely act within one year of Millennium’s November 23, 2015 filing. NYSDEC opposed Millennium’s request asserting that the one-year review period commenced when NYSDEC received a complete application (i.e., within one year of August 31, 2016, the date NYSDEC received Millennium’s last response to NYSDEC’s request for additional information). NYSDEC denied Millennium’s water quality certification on August 30, 2017.

FERC’S ORDER

Under section 401 of the Clean Water Act, a state agency waives its authority to issue a water quality certification if it “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 . . .” In analyzing whether the NYSDEC waived its certification authority, FERC noted that the “crux of evaluating waiver in the instant case is determining the triggering event that began the one-year review process.”

To determine whether the one-year review period commences on the date a water quality certification application is filed, or upon the date a state agency determines that an application is complete, FERC analyzed the statutory language of section 401 of the Clean Water Act. FERC determined that the plain text of the statute, which states that the 401 application review period shall not exceed one year “after the receipt of such request”, indicates that the one-year state agency review period begins the day the agency receives a certification application. FERC also noted that, to the extent there is ambiguity in the statutory text, the legislative history supports FERC’s finding and made clear that Congress established the one-year review period to “ensure that sheer inactivity by the State . . . will not frustrate the federal application.”

The Commission also noted that its holding in this proceeding is consistent with prior Commission precedent interpreting the one-year review process for water quality certification applications filed for natural gas pipeline, liquefied natural gas terminal, and hydroelectric infrastructure. Consequently, FERC rejected NYSDEC’s argument that a one-year state agency review period begins when a state agency determines a water quality certification is complete and ruled that NYSDEC had waived its certification authority for the Valley Lateral Project.

IMPLICATIONS

The Millennium order evinces an effort by FERC to minimize the delays associated with permitting natural gas and hydroelectric infrastructure. As a result of FERC’s ruling, states will no longer be able to hold the development and licensing of energy infrastructure projects in limbo by requiring applicants to continually provide additional information in support of a water quality certification application. As the order acknowledges, however, FERC is not impinging on a state’s ability to act on a water quality certificate application, it merely requires states to timely approve or deny the application within one year after the state receives it.

While the ruling is beneficial to Millennium, it could result in more states denying water quality certifications particularly when a state agency concludes that it does not have enough information in the record to make an informed decision. Nevertheless, FERC’s decision will force states to act timely, thereby removing the regulatory uncertainty created when state agencies request additional information and extend the application review period. Even if state agencies are more inclined to deny water quality certifications or impose onerous conditions on applicants as a result of FERC’s decision mandating a one-year review period from the date an application is filed, timely state action enables judicial review of the state’s decision to occur on a faster timeline. Finally, we note that FERC’s ruling will not impact the ability of an applicant to withdraw and then refile a 401 application to restart the one-year review period, which is a practice employed by certain applicants when state agencies request additional time to review a pending application.

We anticipate that the NYSDEC will seek judicial review of FERC’s order and that the appeal will likely generate widespread support from other states. Baker Botts will continue to report on any significant developments as they arise.

 

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