First Circuit Rules FERC Preempts State Power over Altering Coastlines for LNG Terminals

Explicit Bush-era extension of FERC authority to cut through state law impediments to energy development comes to industry's aid

In Weaver's Cove Energy v. Rhode Island Coastal Resources Management Council (CRMC), the First Circuit overturned two attempts by the CRMC to prevent dredging in a Rhode Island waterway (and a federal navigation channel) for ships delivering gas to a new liquified natural gas (LNG) terminal.

The case implicates the Natural Gas Act (NGA), 15 U.S.C. §§ 717-717z, and the Coastal Zone Management Act (CZMA), 16 U.S.C. §§ 1451-66.

A 2005 amendment to the NGA grants FERC "exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal." 15 U.S.C. § 717b(e)(1). (Weaver's Cove applied to FERC for a permit to build the LNG terminal at issue.) The exclusive FERC approval authority is limited only in areas in which states are granted rights, i.e. under the CZMA and two other federal statutes.

The CZMA gives states authority to create coastal management plans (CMPs) subject to NOAA approval. In Rhode Island, CMPs are administered by the Rhode Island CRMC. As the First Circuit panel explains, "an applicant for a federal permit wishing to undertake any activity the state [CMP] regulates must certify with the local agency that the proposed activity is consistent with the [CMP]." 16 U.S.C. § 1456(c)(3)(A). But "[o]nce an applicant submits its consistency certification, the state agency has six months either to concur with the certification or to object if it concludes that the proposed activity is inconsistent with the [CMP]." 16 U.S.C. § 1456(c)(3)(A). Otherwise, concurrence is presumed. This limitation is explicit; in the eyes of the panel, it is meant to prevent "one state [from] delay[ing] the federal approval process."

Rhode Island state law also requires, separately, that any party wishing to dredge Rhode Island navigable waters must obtain a so-called "Category B Assent" from the CRMC.

(It is worth noting that the Republican Congress in the second Bush term acted more than once to prevent states from delaying expansion of U.S. energy capabilities. For example, section 216 of the Federal Power Act (FPA), also added in 2005, gives FERC permitting authority for electric transmission lines in "national interest corridors" when state utility commissions have "withheld approval [of a permit application] for more than 1 year." 16 U.S.C. § 824p(b)(1)(C). This is currently the subject of heated litigation. See, e.g., Piedmont Environmental Council v. FERC (4th Cir., Feb. 2009); a related case is pending before the Ninth Circuit. The impetus for these changes was the impression that U.S. energy infrastructure was falling behind the times while myriad state authorities dragged their feet.)

In the instant case, Weaver's Cove received conditional FERC approval for its LNG facility, but needed CRMC to sign off. Specifically, the Rhode Island plan under the CZMA required them to acquire a letter from any "upland facility" accepting the fill dredged up from the shipping channel. CRMC maintains that Weaver's Cove's application, first submitted in 2004, is incomplete because it lacks such a letter. Weaver's Cove maintains that no such letter is needed because they were not putting the fill in any Rhode Island "upland facility," instead sending it out of state. Both sides dug in. CRMC maintains that the application is incomplete, and the six-month NGA limit on its consistency determination is therefore tolled. Weaver's Cove says that since the letter was not needed to comply with the CZMA, the incompleteness determination is invalid, and the six-month limit long past. CRMC has also not granted state-law Category B assent, which Weaver's Cove argues is preempted by the NGA and the dormant commerce clause anyway.

Weaver's Cove sued in federal court, seeking a declaratory judgment that CRMC's basis for saying the application was incomplete is invalid, and the consistency determination should therefore be deemed constructively granted under the NGA. Weaver's Cove also sought a determination that Category B assent was preempted by the NGA, or, in the alternative, unconstitutional under the dormant commerce clause.

The district court granted summary judgment to Weaver's Cove on both counts, and the First Circuit agrees. The panel ruled that "upland facility" only includes to facilities in Rhode Island based on the text of the regulation and of other complementary regulations; since Weaver's Cove plans to send the fill out of state, the CZMA requirement that they get such a letter does not apply. The panel also rejected, among other additional arguments, CRMC's sovereign-police-powers-esque argument that it had "an interest in confirming that material dredged from its coast is properly disposed, regardless of the ultimate location."

The panel accepted Weaver Cove's preemption argument "for the narrowest reason, that of conflict preemption." It ruled that "Category B Assent clearly conflicts with FERC's 'exclusive authority' [under the NGA] . . . to license the 'siting, construction, expansion, or operation' of LNG terminals" because it "both conflicts with and is an obstacle to the authority FERC has asserted in this case." The panel refused to affirm on the basis of express or field preemption, and did not reach the dormant commerce clause argument.

Finally, CRMC argued that its power over approving changes to the coastline were somehow saved from preemption by the federal Rivers and Harbor Act, under which the federal Coast Guard has authority over dredging activities. The panel paraphrased CRMC's argument as being that "[s]ince the Army Corps's approval process under the Rivers and Harbors Act does not preempt state licensing schemes, . . . the savings clause in the NGA must therefore protect Category B Assent." The panel was not persuaded by this savings-by-association idea, and turned down CRMC's final gambit.

In one sense, Weaver's Cove Energyv. Rhode Island CRMC is a victory for those who would like to see the balance of power tilted in favor of the feds in energy policy. The wider impact of the decision, however, should be limited by the explicit nature of the operative clause of the NGA.

[Ed.'s Note: My old co-clerk on the D.C. Circuit, Adam White of Baker Botts, was one of the attorneys for Weaver's Cove. I am therefore bursting with pride over his win. But I have tried not to let this influence my description of the case in any way.]