On March 23, the Second Circuit issued its opinion in N.Y. Dep’t of Enviro. Conservation v. FERC, Case No. 19-1610 (i.e., the “Empire Pipeline” case). The case concerns the Federal Energy Regulatory Commission’s (FERC or Commission) determination that the New York State Department of Environmental Conservation (NYSDEC) waived its water quality certification authority with regard to FERC’s issuance of a gas pipeline certificate when NYSDEC sought to extend its review period beyond the one-year deadline under Section 401 of the Clean Water Act (CWA or Act) by agreeing with the applicant to “post-date” the filing date of its water quality certification application by several weeks.
The One-Year Time Limit in CWA Section 401 Is a Bright Line
In its ruling, the Second Circuit agreed with FERC that the NYSDEC waived its Section 401 authority as it failed to issue the certification within the one-year period prescribed by the plain language of the CWA and supported by the Act’s “legislative background.” The court reasoned that Congress had carefully crafted a cooperative federalism scheme that struck a “regulatory balance” and that this balance could not be agreed away by the state and an individual applicant. In support of this view, the court pointed to multistate certificate and licensing proceedings, where the regulatory balance necessitated participation by more than just one state and an individual applicant. The court saw the potential for one state to “indefinitely delay” its review to the detriment of other participants, besides the applicant, such as other states and the public.
Supporting this regulatory balance, the court in Empire Pipeline relied on the D.C. Circuit’s 2019 opinion in Hoopa Valley Tribe v. FERC, 913 F.3d 1099 (D.C. Cir. 2019). The court noted that the purpose of the Section 401 time limitation was to “curb conduct by certifying states that upsets the regulatory balance set by Congress.” Noting the invalidated withdrawal-and-resubmission scheme present in Hoopa Valley Tribe, the court concluded that “Section 401’s bright-line rule also precludes the line-blurring arrangement” (i.e., the arrangement to post-date the applicant’s filing) under review in this case. Importantly, the Second Circuit’s decision avoids a circuit split with the D.C. Circuit. The court also distinguished the facts of Empire Pipeline with recent FERC precedent, Village of Morrisville, 173 FERC ¶ 61,156 (2020), where the Commission found that the state agency did not violate Section 401 when the applicant repeatedly withdrew and resubmitted an application in order to avoid an unfavorable decision.
Implications for Section 401 Going Forward
The bright-line application of the one-year statutory timeframe adopted by the D.C. and Second circuits aligns with the regulatory approach the U.S. Environmental Protection Agency (EPA) codified last year in its Clean Water Act Section 401 Certification Rule. See 40 C.F.R. 121.6(a). Ongoing legal challenges to this particular provision of the new rule are much less likely to succeed with a second federal appellate court essentially adopting the same rationale EPA used to support its updated regulation. It is important to note that one year is the maximum time frame allowed for state certification processes, but federal agencies are empowered to establish shorter “reasonable” time frames under both the plain language of the CWA and EPA’s new regulations. See 33 U.S.C. 1341(a)(1); 40 C.F.R. 121.6(a). For example, the U.S. Army Corps of Engineers has long used 60 days as its presumptive reasonable period of time for CWA Section 404 permitting actions. See 33 C.F.R. 325.2(b)(1)(ii). Moreover, on March 18, FERC amended its regulations to codify the one-year period as the maximum time period for state agencies or other certifying authorities to act on requests for water quality certifications required for a certificate of public convenience issued under the Natural Gas Act.
The Biden administration identified the Section 401 Certification Rule for potential reconsideration in its first few days in office, and North Carolina joined several states challenging the rule, alleging that it reduced state flexibility in managing their Section 401 certification programs. EPA Administrator Regan, who most recently served as the secretary of the North Carolina Department of Environmental Quality, has yet to signal any particular policy direction for the Section 401 Certification Rule, but interested stakeholders should expect certain states to push EPA to increase flexibility in the state certification process, including timeliness of reviews, notwithstanding the bright line legal precedents.
Troutman Pepper will continue to monitor CWA Section 401 developments nationwide, including ongoing litigation pending in the Fourth and Ninth circuits that could potentially impact the emerging precedent in this area.