On February 5, 2019, in an unpublished summary order, a three-judge panel of the U.S. Court of Appeals for the 2nd Circuit (“2nd Circuit”) overturned the New York State Department of Environmental Conservation’s (“New York DEC”) denial of a water quality certification for National Fuel Gas Supply Corporation’s (“National Fuel”) Northern Access Pipeline Project and remanded it back to the state for further explanation.

On February 3, 2017, FERC granted National Fuel a certificate of public convenience and necessity (“Certificate”) to construct the approximately 99-mile pipeline, along with appurtenant facilities, in Pennsylvania and New York.  Under Section 401 of the Clean Water Act (“CWA”), National Fuel was also required to obtain state water quality certifications from both Pennsylvania and New York prior to commencing construction, unless the states denied or waived their CWA Section 401 certification authority.  On April 7, 2017, New York DEC denied water quality certification for the Project.

National Fuel petitioned the 2nd Circuit for review of New York DEC’s denial under Section 19 of the Natural Gas Act, 15 U.S.C. § 717r.  The Court explained that its review pursuant to the Natural Gas Act begins with a de novo review of whether the state agency complied with requirements of federal law, in this case, the CWA.  Upon determining that the state has complied with federal law, the Court then considers whether the state agency’s factual determination was arbitrary and capricious—the standard of review established under the Administrative Procedure Act, 5 U.S.C. § 706(2)(A).  National Fuel argued that, based on its statement that it must “certify that a project meets State water quality standards,” New York DEC applied the incorrect standard of “certainty,” rather than a “reasonable assurance” of compliance with water quality standards, the standard set forth in Section 401 of the CWA itself.  33 U.S.C. § 1341(a)(4).  The Court rejected this argument, finding that both parties agreed that the “reasonable assurance” standard is applicable, and that the New York DEC applied that standard.

The Court then analyzed New York DEC’s factual determinations in support of its denial of water quality certification, under a deferential and narrow arbitrary and capricious review.

The Court concluded that “[a]lthough this is a close case, the Denial Letter here insufficiently explains any rational connection between facts found and choices made.”  Specifically, the Court found that the denial contained no citations to the record it considered when making its determination, to specific projects, or to other studies New York DEC might have considered.  The Court also found that New York DEC relied on considerations beyond National Fuel’s proposal, including stream-crossing methods not proposed by National Fuel and “mistakenly-identified project features” in making its determination.  Finally, the Court found that, while New York DEC was not obligated to agree with FERC’s findings as to the pipeline’s anticipated impacts on water quality, it should have addressed evidence in the record supporting FERC’s water quality findings.

The Court declined to make a determination as to whether there was substantial evidence in the record to support New York DEC’s denial, but remanded “for the limited purpose of giving the Department an opportunity to explain more clearly—should it choose to do so—the basis for its decision.”  The Court also declined to determine whether New York DEC waived its opportunity to issue water quality certification for the Project by failing to act upon National Fuel’s application within one year.  The Court held that the U.S. Court of Appeals for the D.C. Circuit has exclusive jurisdiction to resolve that issue, but that National Fuel would be “free to present any evidence of waiver to FERC in the first instance.”

A copy of the Court’s summary opinion is available here.