Locke Lord QuickStudy: Supreme Court Reinstates NWP 12 for Pipelines, But 1 Out of 3 Ain’t Good

Locke Lord LLP
July 8, 2020

In a busy few days for the pipeline industry, the Supreme Court provided sorely needed relief by issuing a stay of the Montana District Court’s order vacating Nationwide Permit (NWP) 12 for the oil and gas industry.  While significant, the Supreme Court’s order is far from a panacea.  Meanwhile, the industry suffered two other significant setbacks.  First came the announcement by Dominion Energy and Duke Energy that they have cancelled their proposed Atlantic Coast pipeline, just weeks after the Supreme Court granted them a legal victory that would have allowed the pipeline to cross the Appalachian Trail.  Then, on the same day the Supreme Court reinstated NWP 12, the D.C. District Court ruled that Energy Transfer LP must shut down its Dakota Access Pipeline until the U.S. Army Corps of Engineers (USACE) can prepare an Environmental Impact Statement (EIS) for the pipeline in accordance with the National Environmental Policy Act (NEPA).  While these developments are not directly related, collectively they illustrate the myriad challenges that pipeline developers are currently facing and the increasing success that opponents of the industry are having in challenging new and even recently constructed projects.  From a broader perspective, these and other recent developments may warrant consideration of a shift in how developers approach the permitting of significant or controversial projects.

NWP 12 Stay, A Little Bit Longer

As has been widely reported and discussed, including in our previous QuickStudies, a federal judge in the District of Montana issued an order on April 15, 2020 vacating NWP 12, the USACE’s general permit authorizing discharges of fill material into waters of the U.S. from construction of utility lines.  The case involved a challenge to the permitting of TC Energy’s Keystone XL pipeline.  The initial order applied nationwide and to all industries, but the court subsequently narrowed its ruling to apply only to new oil and gas pipelines.  TC Energy and the federal government subsequently appealed the decision to the Ninth Circuit and requested a stay of the district court’s order.  The Ninth Circuit declined to issue a stay, leading the appellants to request a stay from the Supreme Court.  On Monday, the Supreme Court granted the stay except with respect to the Keystone XL pipeline, effectively restoring the availability of NWP 12 for the rest of the industry. 

While the Court’s order was just a single paragraph that provided no substantive analysis, the stay provides a welcome reprieve for an industry that relies heavily upon NWP 12 to expedite project permitting and facilitate construction in a reasonable time frame.  However, the stay does not address all issues created by the initial order or resolve all risks for projects that choose to rely upon it.  First, coming as it does two and a half months after the district court’s original order, and almost two months after the court narrowed its order to apply only to the oil and gas pipeline industry, it may be too little too late for some projects.  Many projects have already developed alternative plans to bore underneath waters of the U.S. using horizontal directional drilling to avoid the need for a Section 404 permit of any kind.  Projects that have already spent the money to reroute their pipelines may now be committed to that path despite the significant added expense.  Other projects are facing lawsuits of their own challenging their use of NWP 12 on the basis of the Montana district court’s decision, even though it is not binding in other districts.  Even projects that intend to make renewed use of NWP 12 have lost significant time in the permitting process.  While it is reasonable to expect that the USACE will immediately resume processing pre-construction notifications, it may still take several months to prepare the application and receive a verification from the Corps, meaning work on the project cannot resume immediately.  Any company that chooses to utilize NWP 12 going forward must also be cognizant of the risk of an adverse ruling in the appeal currently pending in the Ninth Circuit.  Ultimately, the use of NWP 12 will entail risk and uncertainty until the USACE reissues it and the other NWPs in a manner that addresses the deficiencies called out by the district court in its original opinion, which likely will not occur until 2021 at the earliest.

Cancellation of Atlantic Coast Pipeline

Among the projects for which the Supreme Court’s stay of the NWP 12 order was too little, too late, is the Atlantic Coast pipeline that was being developed by Dominion and Duke.  The project won a significant victory in the Supreme Court just weeks ago when the Court held that the Forest Service had the ability to authorize the project’s crossing of the Appalachian Trail rather than the National Park Service.  However, even in the immediate aftermath of that decision it was evident that the project still faced many challenges, including a prior Fourth Circuit decision vacating the Forest Service permit, the need for eight additional permits including one to authorize crossings that could no longer be authorized by NWP 12, and the need for a biological assessment from the U.S. Fish and Wildlife Service addressing endangered species that were not considered in the original EIS.  The project’s proposed route through many low-income communities of color also raised environmental justice concerns that engendered further opposition.  All of these challenges combined to create what Duke Energy described in its press release regarding the project’s cancellation as “an unacceptable layer of uncertainty and anticipated delays” for the project.  The reinstatement of NWP 12 was not nearly enough to overcome the weight of the remaining challenges, which now serve as a sobering example of the regulatory difficulties that major pipeline projects must overcome. 

Draining Dakota Access

The ruling requiring Dakota Access to shut down its pipeline came in the ongoing case of Standing Rock Sioux Tribe, et al. v. U.S. Army Corps of Engineers, et al (Case 1:16-cv-01534).  The case involves challenges by the Standing Rock Sioux and other tribes to the USACE’s issuance of an easement allowing Dakota Access, LLC to lay a pipeline underneath Lake Oahe, a large reservoir behind a dam on the Missouri River.  The court had recently found that the USACE violated NEPA by granting the easement to Dakota Access without preparing an EIS.  The court remanded the case to the USACE to prepare the EIS, but asked the parties for briefing on the appropriate remedy to be granted during the remand.  Specifically, the court asked whether the easement should be vacated and the pipeline emptied during the remand process.

Having reviewed the parties’ briefs on this important question, the court held that the “clear precedent favoring vacatur during such a remand coupled with the seriousness of the Corps’ deficiencies outweighs the negative effects of halting the oil flow for the thirteen months that the Corps believes the creation of an EIS will take.”  This decision was based on the operative test for whether to vacate deficient agency action during remand that was laid out by the D.C. Circuit in Allied-Signal v. United States Nuclear Regulatory Commission, 988 F.2d 146 (D.C. Cir. 1993).  That test requires the court to weigh two factors: the seriousness of the order’s deficiencies (and thus the extent of doubt whether the agency chose correctly), and the disruptive consequences of an interim change that may itself be changed.  

Regarding the first factor, the court noted that it had previously found definitively that there was little doubt that the USACE had been required to prepare an EIS rather than merely an Environmental Assessment (EA) and that its choice not to do so was unjustified.  Citing extensive precedent within the D.C. Circuit, the court observed that such a circumstance “overwhelmingly dictates that vacatur is appropriate.”  Regarding the second factor, the court acknowledged that the harm that shutting down the pipeline would cause to Dakota Access and the industries that rely upon the pipeline was the company’s strongest argument against vacatur.  Dakota Access asserted that it could lose as much as $643 million over the second half of 2020 and $1.4 billion in 2021 if the pipeline were to be shut down.  Further, many North Dakota oil producers would have no way to get their oil to market and would have to shut-in between 3,460 and 5,400 wells, stranding up to 34.5% of North Dakota crude production.  However, the Tribes countered that those claims regarding the effect on North Dakota producers were "wildly exaggerated," because as many as 5,000 wells had already been shut-in due to declining demand resulting from the COVID-19 pandemic.  Moreover, other market participants such as railroads would benefit by an increase in demand for their services.

While acknowledging that some degree of immediate harm to the North Dakota oil industry would result from a shutdown of the pipeline, and that the loss of jobs and revenues in the current economic environment is no small burden, the court nevertheless concluded that those effects do not warrant a decision to remand without vacatur of the easement.  The court’s primary rationale for this conclusion was that NEPA is intended to require detailed analysis of proposed actions, before those actions are implemented. The court stated that if agencies allow project proponents to construct a project before the required analysis is conducted, and then rely upon the economic harm and disruption that would result to insulate them against subsequent vacatur, it would incentivize companies to push forward with substantial investments prematurely and seek forgiveness rather than permission. The court found that this result is contrary to the express design of NEPA.  Indeed, the court concluded that Dakota Access was aware of the economic consequences it could incur by moving forward with the project without an EIS and assumed that risk knowingly.  Moreover, the environmental impact of a spill occurring beneath Lake Oahe was of central concern to the court, and the USACE’s failure to perform an EIS meant that each day the pipeline was in operation carried a risk of potential harm.  Therefore, the court concluded that operation of the pipeline must cease, and the pipeline must be emptied within 30 days of the court’s order. Dakota Access issued a statement that it believes the order is not supported by the law or the facts and that the court exceeded its authority, noting that the pipeline has been safely operating for more than three years. Dakota Access has already requested a stay of the court’s order, which the court initially denied on Tuesday but has agreed to hear briefing on, and is pursuing an appeal to the D.C. Circuit, but the order obviously has enormous financial and economic consequences.   

Lessons to be Learned

While each of these recent developments was rooted in different legal, procedural and economic issues, they are not unrelated.  Collectively, they are a sobering reminder of the myriad challenges and obstacles involved in developing a major infrastructure project.  But more importantly, they provide a compelling lesson in the importance of the procedural requirements of NEPA and other environmental statutes. 

It is natural when permitting a complex project to seek any opportunity for expedited review and permitting within the bounds of the statutory framework and the agency’s rules.  The Trump Administration in particular has been pushing administrative agencies hard to expedite permitting, beginning with its 2017 Executive Order calling on the Council on Environmental Quality to develop expedited procedures and deadlines for NEPA reviews of energy and infrastructure projects, and most recently with its Executive Order to accelerate the nation’s economic recovery from COVID-19 by expediting permitting of such projects.  What these cases illustrate, however, is that an agency expediting its permit process or foregoing fulsome environmental reviews and public engagement can leave a project or a permit more vulnerable to legal challenge.  Opposition groups, be they national environmental organizations or coalitions of affected stakeholders, have access to very sophisticated legal counsel that know how to attack those vulnerabilities, and they are doing so with increasing success.  This trend is likely to continue for the foreseeable future as public sentiment regarding the environment, climate impacts, environmental justice and similar considerations continues to grow.  Companies pursuing potentially controversial projects should take a hard look at the trends evident from these and other successful, recent challenges to large-scale projects and begin to reevaluate their strategies for obtaining a fully defensible permit. Even where an expedited process is made available by an agency such as in accordance with the President’s recent Executive Order, or where an agency is willing to proceed with less than the highest level of environmental review, it may be in the developer’s interest to avoid those paths. Planning from the outset for a lengthier and more robust permitting process may protect against the increasing likelihood and effectiveness of procedural challenges late in the process, or even after the project has completed construction or commenced operations.