On September 4, 2018, the U.S. Court of Appeals for the Third Circuit determined that the Third Circuit, and not the Pennsylvania Environmental Hearing Board (“EHB”), has jurisdiction to review Water Quality Certifications issued by the Pennsylvania Department of Environmental Protection (“DEP”) for interstate natural gas projects governed by the Natural Gas Act. See Del. Riverkeeper Network, et al. v. Dep’t of Envtl. Prot., No. 16-221, 2018 WL 4201626 (3d Cir. Sept. 4, 2018). The Third Circuit also held that DEP does not violate Article I, Section 27 of the Pennsylvania Constitution (“Environmental Rights Amendment” or “ERA”) by issuing a Water Quality Certification that is conditioned on obtaining substantive permits.

The Natural Gas Act, 15 U.S.C. §§ 717-717z, gives the Federal Energy Regulatory Commission (“FERC”) the primary role in regulating interstate natural gas pipelines. States retain certain rights, one of which is to issue Water Quality Certifications under Section 401 of the Clean Water Act, 33 U.S.C. § 1341(a). In issuing a Water Quality Certification, the state certifies that the construction, operation, and maintenance of a natural gas facility – such a pipeline – complies with the state’s water quality standards, provided that the facility operator obtains and complies with certain state permits.  Ordinarily the EHB would have jurisdiction to review DEP’s issuance of a Water Quality Certification, but in the case of interstate natural gas facilities, Section 19(d)(1) of the Natural Gas Act, 15 U.S.C. § 717r(d)(1), provides that the U.S. Courts of Appeals “have original and exclusive jurisdiction over any civil action for the review of an order or action of a . . . State administrative agency acting pursuant to Federal law to issue, condition, or deny any permit, license, concurrence, or approval . . . required under Federal law, other than the Coastal Zone Management Act of 1972.”

At issue in Del. Riverkeeper Network was a Water Quality Certification issued by DEP to Transcontinental Gas Pipe Line Company, LLC (“Transco”) for Transco’s Atlantic Sunrise Pipeline Project.  As a condition to issuing the Water Quality Certification, DEP required Transco to obtain state permits under 25 Pa. Code Chapters 92a, 102, and 105. Environmentalists appealed DEP’s issuance of the Water Quality Certification to both the EHB and the Third Circuit. As we reported last year, the EHB initially found that it had jurisdiction to hear an appeal of a Water Quality Certification. See Lancaster Against Pipelines v. DEP, 2017 EHB 390. The EHB found that the Third Circuit had jurisdiction to review a Water Quality Certification only if it constituted a final agency action. Noting that Pennsylvania law dictates that “no action of [DEP] adversely affecting a person shall be final as to that person until the person has had an opportunity to appeal the action to the [EHB],” 35 P.S. § 7514(c), the EHB held that no final action had yet taken place given the pending appeal before the EHB, which deprived the Third Circuit of jurisdiction at least until the EHB appeal was resolved.

The Third Circuit, in Del. Riverkeeper Network, invalidated the EHB’s reasoning. While the Court agreed with the EHB that a final agency action is indeed required before the Third Circuit can exercise jurisdiction, the Court held that DEP’s issuance of the Water Quality Certification was a final agency action under federal law. The Court noted that, under Pennsylvania law, DEP actions are immediately effective even if appealed to the EHB. The Court also pointed out that DEP and the EHB are “entirely independent agencies” that each conduct “a separate proceeding, under separate rules, overseen by separately appointed officers,” and in that sense, the issuance of a Water Quality Certification by DEP is that agency’s final action.

Moving to the merits, the Court initially rejected the Petitioners’ argument that DEP failed to provide adequate public notice. The Court then rejected the Petitioner’s challenge to DEP’s decision to condition the Water Quality Certification on Transco obtaining substantive permits, finding that no construction can begin until DEP issues the substantive permits, and all interested parties will have an opportunity to challenge the substantive permits. Next, the Court rejected Petitioners’ argument that DEP violated the Petitioner’s Due Process rights by issuing a conditional Water Quality Certification that was a condition precedent for initiating eminent domain proceedings under Transco’s Certificate of Public Convenience and Necessity. The Court found that this argument equated to a substantive challenge to FERC’s issuance of the Certificate of Public Convenience and Necessity, which would need to be challenged in a separate proceeding.

Finally, the Petitioners argued that DEP could not have met its obligation under the ERA to safeguard Pennsylvania’s natural resources because it granted a Water Quality Certification before collecting the environmental impact data that would be required to issue the substantive permits on which the Water Quality Certification was conditioned. The Court first noted that “the Administrative Procedure Act authorizes a broad scope of review, without limiting courts to considering only federal law,” and therefore the Court was permitted to consider whether DEP met its obligation under the ERA. The Court, however, held that, “[b]ecause Transco will have to obtain those substantive permits to begin construction—and PADEP will have to consider Article I, Section 27 in deciding whether to grant or deny them—Petitioners cannot show that they have been harmed by the Department’s decision to issue a conditional Water Quality Certification.”

One unintended consequence of the Third Circuit’s decision in Del. Riverkeeper Network is that it will change the standard of review applicable to the underlying state permits. Generally, the record for a DEP action is developed before the EHB, which conducts an evidentiary hearing and de novo review.  Although DEP accepts written comments during an application review process, it is through an evidentiary hearing before the EHB that the record is fully developed.  In contrast, federal courts generally limit their review to the record that exists as of the time the agency took the action.  DEP does not currently have formal procedures for creating a record for permits issued under 25 Pa. Code Chapters 92a, 102, and 105. When the Third Circuit is ultimately faced with reviewing such a state permit, it could be faced with an incomplete record. Going forward, it will be vital for pipeline operators applying for such permits to work closely with counsel early in application process to ensure that DEP establishes an adequate record.

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