US Authorities Seek Streamlined Natural Gas Pipeline Development

On Aug. 9, 2019, the U.S. Environmental Protection Agency (EPA) issued a notice of proposed rulemaking (NOPR) indicating that the agency seeks much greater authority in the infrastructure permitting processes regulated under the Clean Water Act (CWA). Under the EPA’s proposed rule, states and tribes could only prevent infrastructure construction in matters concerning water quality, ending some of their other long-held permitting authorities. Additionally, if enacted, the rule would cap the amount of time that states and tribes are allowed to evaluate relevant environmental permit applications.

EPA Administrator Andrew Wheeler has indicated that an objective of the rulemaking is to reduce regulatory burdens on energy infrastructure developers:

“Our proposal is intended to help ensure that states adhere to the statutory language and intent of Clean Water Act. When implemented, this proposal will streamline the process for constructing new energy infrastructure projects that are good for American families, American workers, and the American economy.”

If the EPA’s proposal becomes official guidance, then many in the upstream and midstream sectors would benefit as some shale plays produce more natural gas than can currently be transported to distant markets, leading to oversupply and remarkably low gas prices in certain regions, especially around the Marcellus and Utica shale plays. However, all else equal, an increase in gas prices in these regions would place upward pressure on power pricing therein. While this increase may dampen financial pressures felt by some less efficient thermal power generators in these regions, power consumers would likely end up paying slightly more for power.

The EPA seeks to change Section 401 of the CWA by which states and Indian tribes currently hold authority to certify or deny certain infrastructure projects based on whether they comply with federal and state environmental laws. In practice, Section 401 gives these entities the right to weigh in on permitting processes administered by the EPA, the Federal Energy Regulatory Commission (e.g., for hydropower licenses and interstate gas pipeline certificates), and the Army Corps of Engineers.

The NOPR specifies that the one-year period to certify or deny a project begins with the state’s receipt of the initial permit application. This standard contrasts with some states’ practice of starting the one-year clock when they deem the permit application complete.

Some key stakeholders have voiced concerns about the appropriateness of the EPA’s proposal, as well as the thoroughness of the process that EPA used to create it. The Association of Clean Water Administrators (ACWA), whose membership includes state, interstate, and territorial officials who are responsible for implementation of the CWA’s water quality programs, pointed to several perceived deficiencies of the EPA’s proposal:

• A general lack of recognition of states’ rights to protect their water resources under Section 401 of the CWA;
• An attempt to fundamentally alter the balance of power between state and federal governments in regards to managing water resources;
• Inadequate outreach to states in regard to appropriateness of the potential recommendations; and
• Inadequate evidence of why such recommendations are in the public’s best interests.

U.S. Supreme Court Validates “Quick Take”

On Oct. 7, 2019, the U.S. Supreme Court rejected a challenge to the use of “quick take” – a process akin to eminent domain where pipeline development firms are legally allowed to begin construction on private land before paying for access to it. Many property rights advocates saw this case as an important test of the legality of a practice that they view as unfair to landowners. In contrast, many infrastructure developers see the practice as critical to the efficient development of much-needed natural gas pipelines.

Although a legal resolution to such disputes may prove elusive, other measures may alleviate some of the more contentious aspects of quick take. Some have suggested that the FERC could require that pipeline development not begin until all other permits have been obtained. Alternatively, developers could be allowed to perform only those activities (e.g., surveying) which do not significantly alter the landowner’s property until they have been fairly compensated. However, such changes to standard development practice would ultimately increase the time and cost required for pipeline construction.