Oil and Gas Update

Sixth Circuit stays NEXUS pipeline construction in Green, Ohio pending review of Ohio EPA’s CWA §401 certification

December 19, 2017

By: Kevin M. McGuire

On November 22, 2017, in one of many ongoing challenges to pipeline construction, a three-judge panel of the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”), in a 2-1 decision, granted an emergency stay of pipeline construction within the city of Green, Ohio (“Green”) pending a decision on the merits of Green’s petition seeking review of the Clean Water Act (“CWA”) §401 water quality certification issued by the Ohio Environmental Protection Agency (“Ohio EPA”). See City of Green, Ohio v. The Ohio Environmental Protection Agency, No. 17-4016, 6th Cir. November 22, 2017, Order granting emergency stay.

As noted in prior articles of September 7, 2017 and October 9, 2017, the Natural Gas Act of 1938 (“NGA”) vests the Federal Energy Regulatory Commission (“FERC”) with exclusive jurisdiction to regulate sales and transportation of natural gas in interstate commerce, including the construction and operation of pipelines. Prior to commencing construction, the NGA requires that the pipeline company obtain from FERC a certificate of “public convenience and necessity.”  Armed with a certificate of public convenience and necessity, the pipeline company may exercise the right of eminent domain to gain property access and construct pipelines.  Moreover, even though pipeline construction and operation must comply with environmental laws, the NGA restricts the rights of third parties to use state administrative remedies to challenge pipeline development.

For example, the NGA was amended in 2005 to grant exclusive jurisdiction to the Federal circuit courts of appeal for judicial review of determinations made by state agencies “acting pursuant to Federal law” on approvals “required under Federal law” with respect to applicable gas infrastructure. See 15 U.S.C. § 717r (d)(1).  Challenges to FERC certificates must be filed either in the D.C. Circuit or in the circuit where the natural gas company is located or does business, where FERC is afforded deference in this decision making process. See 15 U.S.C. § 717r (b).

Before FERC can issue a certificate of public convenience and necessity, FERC must ensure that the proposed pipeline complies with all applicable federal, state, and local regulations. See 15 U.S.C. §717(b)(d); 18 C.F.R. § 4.38.  Opponents of pipeline development often use the CWA § 401 certification process to delay or defeat pipeline projects.  Section 401 of the CWA requires applicants for federal licenses or permits which may result in a discharge to the waters of the United States to obtain a certificate from the states in which the discharges will occur that the discharges will comply with state-issued water quality standards. See 33 U.S.C. § 1341(a). 

NEXUS Gas Transmission, LLC (“NEXUS”) sought authority to construct 257.5 miles of new natural gas pipeline traversing northern Ohio and Southeastern Michigan to Canada.  On August 25, 2017, FERC issued a Certificate of Necessity and Public Convenience for the $2.1 billion project, subject to, inter alia, NEXUS obtaining a CWA §401 Water Quality Certification from Ohio.

NEXUS applied for the CWA §401 certification on December 17, 2015.  The application was subject to public comment in the fall of 2016 and a public hearing was held on October 19, 2016.  The Ohio EPA issued the certification on September 19, 2017.  Green petitioned the Sixth Circuit for review on September 26, 2017 and moved for an emergency stay of construction on an eight–mile section of the pipeline proposed to run through Green, pending a decision on the merits of its petition.

The Sixth Circuit majority opinion began its analysis by noting that the burden of persuasion was on Green and reciting the four well-known factors that would guide the court’s consideration of Green’s motion for an emergency stay: (1) whether Green has made a strong showing that it will likely succeed on the merits; (2) whether Green will suffer irreparable harm in the absence of a stay; (3) whether the stay will substantially injure other interested parties; and (4) where does the public interest lie. City of Green at 2, citing Nken v. Holder, 556 U.S. 418, 433-34 (2009).

Addressing the first factor, the majority found that, despite the difficulty of meeting the deferential arbitrary and capricious standard necessary to vacate Ohio EPA’s decision, “Green persuasively asserts that the 401 Certification was improper” because Ohio EPA ignored and failed to follow significant procedures. City of Green, at 2.  For example, the majority focused on an Ohio statute requiring “a wetland characterization analysis consistent with the Ohio rapid assessment method (“ORAM”)” and noted that “Ohio EPA appears to concede that ORAM was not followed.” Id at 3. Ohio EPA’s arguments that “it had discretion to use other methods” and that “many of its actions satisfied ORAM,” did not sway the majority.  Instead, the majority cited examples of EPA Ohio’s failure to follow ORAM, failure to explain why its evaluations “were nonetheless reliable,” and failure to evaluate alternative routes that avoid Green. Id.

The majority next had no problem finding that Green had satisfied the second factor-irreparable harm-noting that “[e]nvironmental injury, by its nature, can seldom be adequately remedied by money damages and is often permanent or at least of long duration, i.e., irreparable.” City of Green, at 3 at 3, citing Amoco Prod. Co. v. Village of Gambell, Alaska, 480 U.S. 531, 545 (1987).  The majority then relied on Ohio EPA’s admission that the pipeline would cause long-term environmental harm to at least one location in Green and discounted any off-site compensatory mitigation to be performed by NEXUS as not relevant to the factor “that considers irreparable harm to Green.” Id. at 3-4.

With respect to the third factor, the majority appeared to down-play the potential monetary injury to NEXUS, because the stay applied “only to the eight-mile section of the pipeline that travels through Green” and because the court ordered the clerk of the court to expedite the appeal.” Id at 4.

The majority then found that the fourth factor – whether the stay is in the public interest – did not favor either party noting that “[e]nvironmental protection is certainly in the public interest” and acknowledging the arguments of Ohio EPA and NEXUS that “prompt construction of the pipeline would also be in the public interest.” City of Green, at 4.

The majority concluded that, on balance, a stay was warranted.  They found that Green had made a strong showing of likelihood of success and, contrary to the dissent’s suggestion, “Green is not required to identify bulletproof arguments proving that it will achieve a “landslide victory.” City of Green, at 4.  Hence Green’s strong showing on the first two factors, which are the “most critical,” convinced the majority that a stay was appropriate. Id.

Judge David McKeague dissented, first emphasizing the difficulty of meeting the high burden of “arbitrary and capricious” in order to vacate the Ohio EPA’s decision and the deference owed the agency.  As such, the dissenting judge found that Green’s failure to demonstrate the likelihood of success failed to meet the threshold requirement for moving forward and was fatal to its request for a stay:

But victory on the merits under an arbitrary-and-capricious standard is exceedingly rare, as it is meant to be.  Based on the briefing currently before us, I do not see how Green has shown the kind of strong showing we require to clear this hurdle.

City of Green, at 5.

The dissent disagreed with the majority’s emphasis on Ohio EPA’s failure to apply the ORAM method noting that the Ohio Administrative Code and the ORAM manual both give Ohio EPA discretion to decide whether ORAM is appropriate given the particular wetland conditions. City of Green, at 5, citing Ohio Admin. Code § 3745-1-54; Ohio Rapid Assessment Method for Wetlands v. 5.0, at 1.

The dissent found that the most serious flaw in the majority’s decision was its failure to properly weigh factors three and four, noting that “even the strongest” claims must be balanced against the harm to the opposing party and the public interest. City of Green, at 6, citing Nken, 556 U.S. at 434, 435.  The dissent noted that these two concerns merge when the Government is the opposing party since the government has a strong interest in executing its own orders. Id. at 6, citing Nken, 556 U.S. at 435-36.

The dissent concluded that the “massive economic” costs on NEXUS and the serious “downstream economic effects” caused by a stay cannot be minimized by limiting the stay to the eight-mile section of the pipeline that travels through Green and expediting the appeal.  The dissent reasoned that a pipeline, like a chain, “is only as strong as its weakest link - a pipeline with one missing section is just as useless as a pipeline that doesn’t exist at all.” City of Green, at 6.

Perhaps prescient of further proceedings in the case, the dissent concluded:

If, as the majority concluded, Green has made the requisite strong showing of success on the merits, then the delay will extend far beyond the resolution of this appeal, as the Ohio EPA conducts all the additional testing that Green deems necessary. So expedited consideration is of relatively little comfort unless NEXUS will probably win on the merits-in which case we could not grant a stay in the first place.  And as the Court has consistently reminded us, the cost of delay (which is ultimately what Green seeks here) is a substantial factor in the emergency-stay analysis. Nken, 556 U.S. at 434-36. Regulatory agencies cannot function if we order them to “try again” every time their testing “may have been unreliable.”  Again, that is why the standard on the merits searches for arbitrariness and caprice, not merely imperfection.

Id. at 7.

The parties are now briefing the merits.  No date has been set for oral arguments.  Stay tuned.

This article was authored by Kevin M. McGuire, Jackson Kelly PLLC.