On September 5, 2018, the United States Court of Appeals for the Third Circuit (“Third Circuit” or “Court”) found that FERC did not violate federal law when approving Transcontinental Pipe Line Company, LLC’s (“Transco”) Garden State Expansion Project (“Project”).  The Third Circuit did, however, determine that the New Jersey Department of Environmental Protection (“NJDEP”) improperly denied requests for adjudicatory hearings on the issuance of various permits for the Project because the NJDEP misinterpreted the Natural Gas Act (“NGA”).  As such, the Third Circuit remanded back the permit issue so that NJDEP could reconsider those requests.

Under the Project, Transco proposed to add 180,000 dekatherms per day of capacity from its Mainline to its Trenton-Woodbury Lateral in New Jersey.  The New Jersey Natural Gas company (“NJNG”) contracted with Transco to use all of the Project’s capacity.   In anticipation of obtaining the Project’s capacity, NJNG proposed to build the Southern Reliability Link Project (“SRL”), a 28-mile-long intrastate pipeline connecting the Trenton-Woodbury Lateral to NJNG’s own pipeline system.  In addition, NJNG also contracted for 180,000 dekatherms per day of capacity on the PennEast Pipeline Project (“PennEast”), a separate interstate pipeline project designed to transport natural gas from the Marcellus Shale region to Transco’s existing pipeline system.   On April 7, 2016, after performing an environmental analysis and concluding that the Project would have no “significant impact” on the environment, FERC approved the Project—as long as Transco instituted various mitigation measures.

Transco then applied to the NJDEP for a Freshwater Wetlands Individual Permit and Water Quality Certificate (“FWW permit”) and dewatering permit.  Eventually, the NJDEP issued the FWW permit on March 13, 2017 and the dewatering permit on March 16, 2017.  The townships of Bordentown and Chesterfield, along with the Pinelands Preservation Alliance (collectively, “Petitioners”), filed with the NJDEP a request for an adjudicatory hearing concerning each permit.  The NJDEP subsequently denied the request, finding that the Third Circuit had “exclusive jurisdiction” to review the issuance of permits regarding interstate natural gas pipeline projects, and that the “state administrative hearing process…is not applicable to permits for interstate natural gas projects.”  The Petitioners appealed both FERC’s approval order, and the NJDEP’s denial for an adjudicatory hearing, to the Third Circuit.

On appeal, Petitioners first challenged FERC’s determination that the Project would pose no significant impact on the environment.  Specifically, Petitioners argued that FERC’s decision to evaluate the impacts of the SRL and PennEast projects separately from its evaluation of the Project was arbitrary and capricious because the National Environmental Policy Act (“NEPA”) requires FERC to consider the “connected,” “cumulative,” and “similar actions” of a project under review.  The Third Circuit rejected this claim, concluding, among other things, that FERC was correct in its assessment that the Project would still proceed regardless of whether or not PennEast was built, and that there were no relevant “cumulative impacts” caused by the SLR, an intrastate pipeline that does not fall under FERC jurisdiction.

In addition, Petitioners argued that FERC did not adequately consider the significant impacts that the Project would have on the water quality of wells and cisterns in the area.  The Third Circuit rejected this claim as well, finding that even though the precise number of wells and cisterns was not known at the time that FERC conducted its environmental impact analysis, FERC’s order conditioning its approval on Transco identifying, monitoring, and mitigating the impact to such resources was sufficient to meet FERC’s obligations under NEPA.

Lastly, the Petitioners challenged NJDEP’s determination that federal preemption via the NGA prevented it from granting adjudicatory hearings in consideration of the FWW and dewatering permits.  On this issue, the Third Circuit noted that the NGA states that a United States Court of Appeals has “original and exclusive jurisdiction over any civil action for the review of an order or action of a…state administrative agency acting pursuant to Federal law to issue, condition, or deny any permit, license, concurrence, or approval . . . required under Federal law.”  The Third Circuit concluded that the NJDEP appeared to rely on the plain language of “civil action” in the statute in denying the requested adjudicative hearing.  However, the Third Circuit cautioned that the Supreme Court has interpreted “civil action” as only referring to judicial cases, not administrative proceedings.  Therefore, the Third Circuit held that “the NGA leaves untouched the state’s internal, administrative review process, which may continue to operate as it would in the ordinary course of state law.”  As a result, the Third Circuit remanded to the NJDEP for reconsideration of the Petitioners’ request for an adjudicative hearing regarding the issuance of the FWW and dewatering permits.

A copy of the opinion may be found here.