Constitution Pipeline Company – Clean Water Act Section 401 Saga

On April 30, 2018, the U.S. Supreme Court denied certiorari in the Constitution Pipeline Company case relating to stream crossings by gas pipelines. The denial of certiorari leaves standing the decision of the Second Circuit Court of Appeals that held, in effect, that state agencies may require pipelines to assess water quality impacts of pipelines on a case-by-case basis at every crossing of a stream or wetland. The decision does not create significant new law, but conveys some important lessons for future pipeline projects.

There were two key issues in the case. The first was whether a certificate of public convenience and necessity issued by the Federal Energy Regulatory Commission ("FERC") preempted review by the New York State Department of Environmental Conservation ("NYSDEC") under Section 401 of the Clean Water Act ("CWA"). The second was whether NYSDEC acted arbitrarily and capriciously in denying a water quality certification ("WQC") under Section 401 of the CWA. The Second Circuit sided with NYSDEC on these issues, and the Supreme Court's denial of review makes the Second Circuit's decision the final decision on the issues presented.

The case arose following an unusually extended process before NYSDEC concerning the methods of crossing 251 waterbodies located in New York State. Constitution Pipeline Company ("Constitution") originally filed its application for a WQC with NYSDEC on August 22, 2013. After discussions with NYSDEC and communications regarding the adequacy of the application, Constitution twice withdrew and refiled applications for the WQC on May 9, 2014 and April 27, 2015. Although Constitution provided some additional information to NYSDEC at various points in time, NYSDEC considered the studies inadequate and requested additional site-specific information for each of the crossings. On April 22, 2016, two and one-half years after the initial application, NYSDEC rejected Constitution's application for a WQC, citing Constitution's failure to provide sufficient information about water resource impacts and emphasizing its failure to provide site-specific evaluations for each stream crossing.

Basis for Second Circuit Decision

Constitution's arguments were not strong. Constitution argued that the proceedings before FERC somehow superseded or preempted NYSDEC's authority under the CWA. As the Second Circuit notes, the Natural Gas Act expressly preempts certain legislation, and specifically requires compliance with the CWA. Neither FERC's review of environmental impacts under the National Environmental Policy Act ("NEPA") nor the issuance of a certificate of convenience and necessity avoids CWA review, including Section 401's requirement for a WQC prior to issuance of federal permits. This conclusion did not create new law and established no new principles.

Constitution also argued that NYSDEC abused its discretion and acted arbitrarily, which is a legal standard that is difficult to sustain. In essence, Constitution had to argue and was required to demonstrate that NYSDEC's actions had no logical relationship to its legal authority and/or were not reasonably related to the decision NYSDEC was required to make under the CWA. That argument was difficult to win, based on NYSDEC's clear authority to review proposed stream crossings under the CWA and the nature of the information requested regarding methods and impacts of crossing streams. NYSDEC had reduced the requests based on various screening factors to fewer than 89 stream crossings, reflecting an evaluation of relevant factors in exercising administrative discretion. There was little chance that a court would determine that these somewhat targeted requests, focusing on factual issues within NYSDEC's jurisdiction, were not reasonably related to NYSDEC's statutory mission.

Constitution also petitioned the Second Circuit for review on the basis that NYSDEC exceeded the "reasonable time" limitation for making decisions under CWA Section 401 and, therefore, waived its right of review. The Second Circuit rejected this argument on jurisdictional grounds, concluding that the exclusive jurisdiction for challenges to the timeliness of agency decisions is with the Court of Appeals for the District of Columbia.

Interpreting the Final Outcome

The Supreme Court's denial of certiorari was not explained, but it may be interpreted to mean that the Second Circuit's decision conforms to prior judicial interpretations of NEPA, the CWA and the NGA. Nor does the case appear to raise any other issues justifying Supreme Court review. Unless Constitution attempts to file its timeliness challenges in the D.C. Circuit Court of Appeals, the denial of review by the Supreme Court is the final stop concerning NYSDEC's actions. Constitution's only option, at this point, would be to return to NYSDEC with modified applications and information, in an attempt to secure the WQC it originally sought. 

There are a couple of general takeaways from this case.

1. State Agency Discretion. In connection with pipeline projects, state agencies now have the clear authority to require review of alternative techniques for crossing streams. While they probably had that authority previously, there is now little question that state agencies may request detailed information that might previously have been considered out of bounds or impractical. Whether State agencies will exercise this discretion to require more information in connection with WQCs is not yet clear, but they certainly have the authority to do so.
    
2. Reliance upon FERC Review. As may have been clear before the Constitution case, FERC's actions do not necessarily satisfy or preclude environmental review by other federal or state agencies under certain statutes. While FERC may approve an overall project based upon a consideration of certain environmental impacts, other agencies have specific or focused jurisdiction that may not require a consideration of overall project benefits, and may require strict adherence to regulatory or technical standards. FERC's approval, while essential, would not always preclude deeper review – and rejection of applications – by other agencies. But the FERC environmental review process may incorporate the comments and reviews by other agencies, including (as here) state agencies. Project proponents can use the comments and positions expressed during the FERC proceedings to navigate state agency reviews.

The possible issue of greatest interest is a much narrower one – whether standard trench methods for stream crossings continue to be viable or alternative (trenchless) methods are now mandatory for all stream crossings. The answer to that is the appropriate crossing method is to be determined on a case-by-case basis in the discretion of state agencies and federal agencies other than FERC (such as the Army Corps of Engineers). The Second Circuit's decision confirming NYSDEC's right to ask relevant questions is not a mandate that alternative stream crossing technology be used in every case, and the CWA does not require that in any event. But the decision is likely to cause other state agencies to consider whether alternative stream crossing techniques should be reviewed in connection with water quality certifications. Those state agencies would probably take into account the technical feasibility, as well as the impacts of various alternatives and their costs, and require such technologies only in particular cases.

Finally, this decision is likely to attract attention in cases where a state agency opposes a project, and to be used by environmental groups to challenge projects, under NEPA or otherwise. But the relevant agency's discretion is what matters. A state environmental agency can issue a CWA Section 401 certification with or without alternative stream crossing technology under current law. The Constitution decisions do not materially change the applicable law or mandate consideration of particular factual issues.