What’s the issue?

The DC Circuit issued a decision yesterday that upheld the lower court’s decision requiring the USACE to prepare an EIS to support its easement allowing DAPL to cross Lake Oahe. MVP also filed with FERC, indicating it was abandoning its efforts to build the remainder of the pipeline under NWP12 and would seek project-specific authority from the USACE.

Why does it matter?

The Biden administration will now get to review both of these pipelines and the authorizations they need to continue in service (for DAPL) or go into service (for MVP).

What’s our view?

We expected both of these decisions, and the actions of the Biden administration in both cases will signal whether the administration intends to be influenced by the science or by politics. Right now, that is a tough call to make, and it may turn on the influence wielded by centrists in the Senate.

As we projected in Will the Court Force DAPL to Shut Down?, yesterday a unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) upheld a lower court decision that ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) to support its decision to grant Dakota Access Pipeline (DAPL) an easement. As we predicted in Litigation Update: Dakota Access and Water Quality Certificate, the DC Circuit held that: (1) the lower court was correct to direct that an EIS be prepared; (2) the court was correct to void the easement as a result; but (3) the court should not have ordered the pipeline to be shut down without first applying the traditional four-factor test for injunctions.

Also, following the failure of FERC to act at last week’s open meeting that we discussed in Biden’s Energy Nominees May Make Building New Pipelines Impossible, Mountain Valley Pipeline (MVP) publicly acknowledged that it would no longer use Nationwide Permit 12 (NWP12) as the permit for its remaining wetland and waterbody crossings -- but would instead file a joint application package to the USACE’s Huntington, Pittsburgh and Norfolk Districts requesting an individual permit to implement open cut techniques for certain water bodies and wetlands under Section 404 of the Clean Water Act. MVP’s applications will also cover streams regulated by Section 10 of the Rivers and Harbors Act. MVP will follow those applications with water quality certification requests to the West Virginia Department of Environmental Protection and the Virginia Department of Environmental Quality.

As we discuss more fully below, these developments put the future of both of these projects squarely within the control of the USACE, although MVP will also need approvals from other agencies. The manner in which the Biden administration handles these requests may be a key signal for the future of pipeline projects for the remainder of his term. In our view, the fact-based result for both projects is approval. If that is not what happens for these projects, then the future may dim for all projects that seek approval in the next four years.

The Facts About DAPL

DAPL’s route required it to cross Lake Oahe and for that crossing, it needed authority from the USACE under the Rivers and Harbors Act, and it needed an easement under the Mineral Leasing Act. On July 25, 2016, the USACE granted DAPL the authority it needed under the Rivers and Harbors Act based on the preparation of an environmental assessment (EA) which concluded that the placement of the pipe would not result in significant environmental impact. The decision on July 25, however, did not include the easement needed for the crossing of Lake Oahe. On September 9, 2016, the USACE and the Departments of Justice and Interior issued a joint statement noting that the Standing Rock Sioux Tribe (Tribe) had raised important issues regarding the easement and that the easement would not be issued until a review of the project’s previous approvals was completed.

Following the 2016 election, on November 14, 2016, the USACE decided that additional consultation with the Tribe was required. In December 2016, the Office of the Assistant Secretary of the Department of the Army issued a directive to the USACE to undertake the preparation of an Environmental Impact Statement to support the grant of the easement, with a particular focus on three areas: (1) alternatives for the crossing of the Missouri River other than at Lake Oahe; (2) a detailed risk analysis of an oil spill and its impact on the Tribe; and (3) the extent and location of the Tribe’s treaty rights with respect to Lake Oahe. This culminated in the issuance of a notice to prepare an EIS being issued on January 17, 2017, just three days before President Trump took office.

On January 24, 2017, just four days after his inauguration, President Trump issued an executive order to the Secretary of the Army declaring that DAPL was in the national interest and directing the Secretary of the Army to direct the USACE to: (1) review and approve, on an expedited basis, the easement across Lake Oahe; (2) withdraw the notice of intent to prepare an EIS; and (3) consider using the EA used to support the decision under the Rivers and Harbors Act as sufficient to support the grant of the easement.

The Spin About DAPL

With this history of the decision to issue the easement to DAPL, it is not surprising that the parties hold very different views as to which were the “fact-based” decisions and which were the “politically-expedient” ones. The Tribe sees the determination of the Obama administration that an EIS was needed as being fact-based and that the Trump Administration then came swooping in and replaced the fact-based decision with a political one. DAPL’s view is, of course, completely opposite of the Tribe’s. In DAPL’s view, the original finding in July 2016 that the project would not have a significant impact on the environment was the fact-based one. The Obama administration then superseded that with a politically motivated one, particularly after it was clear that the next administration would be run by President Trump. In DAPL’s view, President Trump, with his executive order, just restored the fact-based decision of career staff and reversed the politically-motivated one of his predecessor.

The Risk to DAPL

In its decision yesterday, the DC Circuit clearly upheld the Obama administration decision requiring the preparation of an EIS, but did not prejudge what the outcome of that process would mean for the easement. Some industry observers have indicated that they expect an appeal of this decision to the Supreme Court, but the challenge is to the actions of the USACE and therefore it is the Biden administration that would need to appeal. We view that as very unlikely.

The DC Circuit also agreed with the lower court that the proper remedy for failing to prepare an EIS is to void the easement. However, the court held that, at least initially, it was not up to the lower court to order a shutdown of the pipeline. In the key holding of the decision, the DC Circuit found:

"It may well be—though we have no occasion to consider the matter here—that the law or the [USACE’s] regulations oblige the [USACE] to vindicate its property rights by requiring the pipeline to cease operation and that the Tribes or others could seek judicial relief under the APA should the [USACE] fail to do so. But how and on what terms the [USACE] will enforce its property rights is, absent a properly issued injunction, a matter for the [USACE] to consider in the first instance, though we would expect it to decide promptly." (Emphasis added).

It is this language that puts both the short-term and long-term operating future of DAPL squarely within the control of the USACE. While the lower court may seek an answer to this question from the USACE, we do not expect that court to impose an injunction until it gets that answer. It would not be surprising to hear from the USACE that it will order DAPL to operate at a reduced pressure while the EIS is prepared, but we would be surprised if it actually ordered a complete shutdown. We think any decision by the USACE that does not simply allow continued operations will be honored by the lower court. If the USACE decision requires the pipeline to shut down, we would expect DAPL to appeal that decision. The final result of the EIS is more difficult to project, but we still believe that a fact-based analysis would support the issuance of the easement. So, if the USACE were to order a complete shutdown of the pipeline, either in the short-term or the long-term, or deny the easement after completing the EIS, we would view that as an adverse result for pipelines in general. DAPL would also likely appeal any decision to not reissue the easement.

MVP Decision

Also yesterday, MVP announced that it was no longer going to rely on NWP12 for its crossing of wetlands and waterbodies. Instead, it said that it would be submitting a joint application package to the USACE’s Huntington, Pittsburgh and Norfolk Districts requesting an individual permit to implement open cut techniques for certain water bodies and wetlands under Section 404 of the Clean Water Act and addressing streams regulated by Section 10 of the Rivers and Harbors Act. We previously have looked at how long such applications take in in the Huntington and Norfolk Districts and the time frames are not short.

Copy of 20200603-1 ApprovalSwarmPlot-1

The time period reflected above is the period between the date the USACE issues the public notice of an application for a project-specific permit and the date that the USACE issues that permit. As can be seen, this time period on average is almost nine months, with over half of all projects taking more than seven months and half taking less than that. However, because the time period reflected doesn’t even start until after the USACE has determined that an application is complete, the time period from the submission of an application to approval is likely a couple of months longer than this. With a project that will result in extensive comments, we believe that even a nine-month time period may be optimistic because the USACE will not issue the individual permit until it receives a water quality certificate from the relevant state.

MVP addressed that issue by indicating that, no sooner than thirty days following the joint applications to the USACE, it would submit water quality certification requests to the states of West Virginia and Virginia for the proposed individual permit from each USACE district. To facilitate the USACE’s review of the new applications, MVP will also request each of the USACE districts to administratively revoke the previous verifications under NWP12 and then will seek dismissal of the appeals of those verifications that are pending before the Fourth Circuit.

Finally, MVP stated that, concurrent with its submission to the USACE, it would be submitting a certificate amendment application to FERC that would cover all remaining crossings for the full project route not included in the individual permit application. MVP would also seek authorization to change the crossing method for certain water bodies and wetlands from previously approved open cut techniques to trenchless methods, as well as any other FERC approvals necessary to complete the project. MVP also withdrew its previous application seeking to change the crossing methods in the first 77 miles of the project, one of the requests FERC failed to act on at last week’s open meeting.

While styled as being a choice made by MVP, this decision may have been forced upon the project by the actions telegraphed in one of the executive orders signed by President Biden on his first day in office. In an executive order titled Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis, President Biden identified his administration’s policy in the area and then issued three key directives. First, as for the policy, the executive order states that it is the Biden administration’s policy to “listen to the science; to improve public health and protect our environment; to ensure access to clean air and water; to limit exposure to dangerous chemicals and pesticides; to hold polluters accountable, including those who disproportionately harm communities of color and low-income communities; to reduce greenhouse gas emissions; to bolster resilience to the impacts of climate change; to restore and expand our national treasures and monuments; and to prioritize both environmental justice and the creation of the well-paying union jobs necessary to deliver on these goals.”

To further these goals, the executive order directs all agencies to immediately review and take action to address the promulgation of regulations and other actions during the last four years that conflict with these important national objectives. In addition, in reviewing all such actions of the Trump administration, the agencies are to seek input from the public and stakeholders, including Tribal officials, environmental advocates, and environmental justice organizations. Finally, during and following this review, the Attorney General is directed to provide notice of the executive order and any reviews and actions taken to any court with jurisdiction over any of the decisions made in the last four years. The Attorney General is directed to exercise discretion but should consider requesting that the court stay or otherwise dispose of litigation, or seek other appropriate relief consistent with the executive order.

The litigation concerning all of MVP’s permits that were issued by the Trump administration may be impacted by this executive order. The Trump Justice Department was vigorously defending the permits issued by the various agencies. It is an open question as to whether the Biden Justice Department will choose to defend those permits. Instead, it is possible in all of the pending litigation that the Biden administration simply requests that the court vacate the Trump administration’s authorization and remand it to the Biden administration for further review. While such a result would be a setback for the project from a timing perspective, it could greatly diminish the primary risk for the project, which is the skepticism of the Fourth Circuit about the Trump administration. If the Biden administration pulls a permit back but ultimately reissues it, we think those decisions will be viewed far less skeptically by the court than the same permit issued by the Trump administration. So while it might take longer to get such permits, if the permits are issued -- which is a big if -- we think the project ultimately has a better chance of finally going into service.

Given that the project is at least 30 days away from filing its request for a water quality certificate and that each of the states will have one year to consider that request, we do not see how the project can be in-service before the middle of 2022. We expect that Virginia will take the full year to consider the request for a water quality certificate, which would put that approval in March 2022. With at least three months of construction left at that point, we would expect that the earliest the project could be in-service would be July of 2022.

How the Biden administration acts in response to these two projects may be an early indicator of whether the administration intends to be led by the science, as stated in the executive order (which in our estimation would lead to final approval of both projects) or be led by the politics, which would result in a problem for both projects and the industry as a whole. The administration’s actions may be influenced by how much help they need from centrist senators to achieve other goals that require legislative solutions.

If you would like to discuss how the USACE’s role will impact either DAPL or MVP, or how the Biden executive order may impact other cases currently pending in the courts, schedule a call with the ArboIQ team.