Islander East Pipeline v. Conn. Dept. of Environ.

• Decision Date: 05 October 2006
• Docket Number: Docket No. 05-4139-AG.
• Parties: ISLANDER EAST PIPELINE COMPANY, LLC, Petitioner, v. State of CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

467 F.3d 295

ISLANDER EAST PIPELINE COMPANY, LLC, Petitioner, v. State of CONNECTICUT DEPARTMENT OF ENVIRONMENTAL PROTECTION, Respondent.

Docket No. 05-4139-AG.

United States Court of Appeals, Second Circuit.

Argued January 4, 2006.

Reargued April 11, 2006.

Decided October 5, 2006.

Frederick M. Lowther (Beth L. Webb, Janet M. Robins, on the brief), Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C.; Anthony M. Fitzgerald, Carmody & Torrance, LLP, New Haven, CT; Thomas L. Stanton, Associate General Counsel, Duke Energy Islander East Pipeline Company, LLC as Operator for Islander East Pipeline Company, LLC; Walter Dellinger (Jonathan D. Hacker, Nicole A. Saharsky, on the brief), O'Melveny & Myers LLP, Washington, D.C., for Petitioner.

Richard Blumenthal, Attorney General, State of Connecticut (Kimberly P. Massicotte, David H. Wrinn, Assistant Attorneys General, on the brief), Office of the Attorney General, Hartford, CT, for Respondent.

Before KEARSE and RAGGI, Circuit Judges, and RESTANI,^* Judge.

Judge KEARSE dissents in a separate opinion.

RESTANI, Chief Judge.

Petitioner Islander East Company, LLC (Islander East) is a natural gas company, formed under the laws of Delaware, with its principal place of business in Houston, Texas. Petitioner seeks to construct an interstate natural gas pipeline, originating in North Haven, Connecticut, and crossing the Long Island Sound to terminate in Brookhaven, Long Island. In furtherance of this project, Petitioner asks the Court to review an order of the State of Connecticut Department of Environmental Protection (CTDEP) denying Petitioner's application for a Water Quality Certificate (WQC) for discharge into the waters of the Long Island Sound. Although we review such an agency denial deferentially, in this case, it appears that the challenged agency decision was arbitrary and capricious because the CTDEP (1) failed adequately to explain or support its denial with record evidence, (2) did not acknowledge or explain contradictory record evidence, and (3) neglected to consider important aspects of the problem. Accordingly, we remand to the agency for further proceedings consistent with this opinion.

BACKGROUND

This case involves a petition to review a state agency determination pursuant to a recent amendment to the Natural Gas Act of 1938(NGA), 15 U.S.C. § 717 (2000). The Energy Policy Act of 2005 (EPACT), Pub.L. No. 109-58, § 313(b), 119 Stat. 594, 689-90 (2005), in part amended section 19 of the NGA to provide an expedited direct cause of action in the federal appellate courts to challenge a state administrative agency's order, action, or failure to act with respect to a permit application required under federal law in order to proceed with a natural gas facility project subject to section 5 or 7 of the NGA.¹ See 15 U.S.C. § 717r(d) (West Supp.2006). Our consideration of section 19(d) of the NGA is a matter of first impression in this circuit.

A. Statutory and Regulatory Scheme

The NGA provides comprehensive federal regulation for the transportation or sale of natural gas in interstate commerce. 15 U.S.C. § 717(b); see also Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300-01, 108 S.Ct. 1145, 99 L.Ed.2d 316 (1988). Natural gas companies are subject to the exclusive jurisdiction of the Federal Energy Regulatory Commission (FERC). 42 U.S.C. § 7172(a)(1). Pursuant to section 7 of the NGA, a natural gas company must obtain from the FERC a "certificate of public convenience and necessity" before it constructs, extends, acquires, or operates any facility for the transportation or sale of natural gas in interstate commerce. 15 U.S.C. § 717f(c)(1)(A). The FERC is required to issue such a certificate if it finds the company "is able and willing" to comply with the federal regulatory scheme and the proposed project "is or will be required by the present or future public convenience and necessity," but the FERC may attach "to the issuance of the certificate ... such reasonable terms and conditions as the public convenience and necessity may require." Id. § 717f(e).

In conjunction with the FERC's review of a natural gas project application, it must ensure that the project complies with the requirements of all relevant federal laws including the National Environmental Policy Act (NEPA), 42 U.S.C. §§ 4321-4370f,² the Coastal Zone Management Act (CZMA), 16 U.S.C. §§ 1451-1465,³ and the Clean Water Act (CWA), 33 U.S.C. §§ 1251-1387.⁴ See Islander East Pipeline Co., 102 F.E.R.C. ¶ 61,054, at 61,130 (2003) (order on rehearing) (stating that "[w]hile state and local permits are preempted under the NGA, state authorizations required under federal law are not").

The EPACT amended section 19 of the NGA to provide natural gas companies with a cause of action in federal court to challenge an agency's order, action, or failure to act with respect to permits necessary for the construction or operation of natural gas projects. Specifically, if an agency denies a permit,

[t]he United States Court of Appeals for the circuit in which a facility subject to section 717b of this title or section 717f of this title is proposed to be constructed, expanded, or operated shall have original and exclusive jurisdiction over any civil action for the review of an order or action of a Federal agency (other than the Commission) or State administrative agency acting pursuant to Federal law to issue, condition, or deny any permit, license, concurrence, or approval (hereinafter collectively referred to as "permit") required under Federal law, other than the Coastal Zone Management Act of 1972.

15 U.S.C. § 717r (d)(1) (citation omitted). If the Court finds that the order or action (1) is inconsistent with the federal law governing the permit, and (2) would prevent the construction, expansion, or operation of the proposed natural gas facility, "the Court shall remand the proceeding to the agency to take appropriate action consistent with the order of the Court." 15 U.S.C. § 717r(d)(3). Further, the statute provides expedited review over such an order, action, or failure to act. See 15 U.S.C. § 717r (d)(5).

The limited legislative history accompanying the EPACT indicates that Congress enacted section 19(d) because applicants, like Islander East, were encountering difficulty proceeding with natural gas projects that depended on obtaining state agency permits. See Reg'l Energy Reliability & Sec.: DOE Auth. to Energize the Cross Sound Cable: Hearing Before the H. Subcomm. on Energy & Air Quality, 108th Cong. 8 (2004) (statement of Rep. Barton) (discussing an earlier version of the EPACT, and explaining that "the comprehensive energy bill requires States to make a decision one way or another, and removes the appeal of that decision to Federal court," which "will help get projects, like the Islander East natural gas pipeline, constructed"); Natural Gas Symposium: Symposium Before the S. Comm. on Energy & Natural Res., 109th Cong. 41 (2005) (statement of Mark Robinson, Director, Office of Energy Projects, FERC) (observing that, prior to the enactment of the EPACT, NGA applicants were subject to "a series of sequential administrative and State court and Federal court appeals that [could] kill a project with a death by a thousand cuts just in terms of the time frames associated with going through all those appeal processes").

B. Islander East's NGA Application

On June 15, 2001, Islander East filed an application with the FERC under section 7(c) of the NGA for a certificate of public convenience and necessity to construct, own, and operate a new interstate pipeline to transport gas in Connecticut and New York. See Islander East Pipeline Co., 97 F.E.R.C. ¶ 61,363, at 62,685 (2001). In pertinent part, Islander East proposed to construct: (1) approximately 44.8 miles of 24-inch pipeline from an interconnection with an existing pipeline near North Haven, Connecticut, across the Long Island Sound to Brookhaven, New York on Long Island; and (2) approximately 5.6 miles of 24-inch pipeline from the proposed Islander East mainline near Wading River, New York, to a power plant in Calverton, New York. Id. Approximately 22.6 miles of the pipeline would cross the Long Island Sound, with the remaining 27.8 miles onshore. See Islander East Pipeline Co., 100 F.E.R.C. ¶ 61,276, at 62,102 (2002).

On December 21, 2001, the FERC issued a Preliminary Determination on Non-Environmental Issues relating to pipeline construction, which indicated that authorization for the construction and operation of the proposed work would be in the public convenience and necessity as required for approval under section 7(c) of the NGA. See Islander East Pipeline Co., 97 F.E.R.C. at ¶ 62,685. On August 21, 2002, the FERC issued a Final Environmental Impact Statement (FEIS), pursuant to the requirements of NEPA. Fed. Energy Regulatory Comm'n, Islander East Pipeline Project, Final Environmental Impact Statement (2002); see also Islander East Pipeline Co., 102 F.E.R.C. ¶ 61,054, at 61,113-14 (2003). The FEIS determined that one project system alternative to Islander East's proposal would be environmentally preferable because that alternative, based on the Iroquois Pipeline's ELI Extension Project, had a shorter Long Island Sound crossing, avoided more shellfish leases, and would only have air quality and noise impacts onshore in Connecticut. See FEIS at ES-5. Nevertheless, the FEIS concluded that, if Islander East constructed the project as proposed and in accordance with the recommended mitigation measures, it would be an environmentally acceptable action. See id.

On September 19, 2002, the FERC issued a final order granting Islander East's requests for authorization to construct and operate its proposed interstate natural gas pipeline, conditioned on its compliance with various environmental requirements prior to beginning construction on the pipeline. Islander East Pipeline Co., 100 F.E.R.C. at ¶ 62,102. The FERC concluded that...