Energy Infrastructure on Tenuous Winning Streak in the Courts

Federal courts have been pretty kind to energy infrastructure in recent weeks, particularly in cases involving the National Environmental Policy Act (NEPA).

For starters, this month, the U.S. Court of Appeals for the Ninth Circuit removed one of the hurdles to construction of the Keystone XL pipeline. The court decided that a new presidential permit—issued in March—mooted a lower court’s order blocking the project due to purported NEPA deficiencies.

Around the same time, the U.S. Court of Appeals for the D.C. Circuit rejected environmental challenges to a less controversial action: The Federal Energy Regulatory Commission’s (FERC’s) approval for a new natural gas compression facility in Tennessee. The court ruled that FERC was not required to consider that facility’s indirect environmental impacts from increased gas production upstream or from increased gas combustion downstream (although the court criticized FERC for not asking applicants for more information about these issues).

And a few weeks ago, the D.C. Circuit lifted an injunction against a major transmission line project near historic Jamestown, Virginia, despite finding that NEPA had been violated. Though critical of the permitting agency and utility company, the D.C. Circuit decided not to vacate the project but, instead, directed a lower court to evaluate whether to allow the already-built transmission line to remain in use while the environmental review issues are addressed on remand.

These rulings—and many others since early 2017—raise a crucial question: should federal courts vacate permits, licenses, easements, or other energy project approvals whenever deficiencies in environmental reviews are found or, instead, remand those evaluations back to the agency with the approval left intact? The answer is key to the nation’s ability to build vital energy infrastructure of all kinds—from coal or gas export facilities that send affordable energy abroad to renewable power and other projects that help meet clean energy targets domestically.

When deciding the “vacate or remand” question, federal courts usually consider the seriousness of the agency error and the degree of disruption that vacating project approvals would cause. Where a serious error caused the agency to make the wrong decision about the project, vacatur is much more likely, unless substantial and costly disruption might result. Myriad factors could be considered, such as the number of jobs at stake, the stage of construction, the potential environmental impact, and the public need for the energy or transmission.

As an alternative to vacatur, plaintiffs sometimes ask courts to enjoin further construction or operation pending the agency’s completion of the required environmental evaluation on remand. In those instances, courts apply the usual four-factor test for issuance of an injunction: irreparable harm, inadequacy of legal remedies, balance of hardships, and the public interest.

Though applying traditional factors, this approach is also inherently unpredictable and idiosyncratic. Uncertainty here carries at least two practical consequences of concern to project proponents: first, a significant slow-down in the permit process as the agencies and applicants strive for the “perfect analysis”—not just the “hard look” required under NEPA; and second, investor concerns and reticence as project timelines become increasingly less predictable.

The appellate courts could establish that, where an agency acts in good faith to comply with NEPA, vacatur as a remedy should be disfavored and not routinely ordered. Unfortunately, greater predictability may require an act of Congress.

In the meantime, project proponents should take several steps to increase the odds of surviving inescapable attempts at judicial vacatur.

One, they should support ongoing efforts at the federal level to streamline and improve the environmental review and permitting processes. For example, last week, the Forest Service proposed new NEPA regulations for projects in federal forests. These new rules, if adopted, should provide tighter timeframes for reviews and allow for expanded use of categorical exclusions. Too many agencies have NEPA regulations that are out-of-date or too unwieldy to provide predictable, efficient outcomes.

Two, as reviews for complex, large-scale energy projects tend to be iterative in nature, project proponents and their supporters must provide high-quality data throughout the permit process. Permits and other project approvals rise or fall based on the quality of the administrative record developed at the agency.

Three, it is crucial for project proponents to step in to help defend permits against environmental lawsuits because no one (not even the agency and its lawyers) cares as much about the fate of an energy infrastructure project as the proponents.

For better or worse, the future of energy infrastructure in the U.S. is largely in the hands of the federal judiciary. To the extent courts are inclined to remand for NEPA compliance—instead of vacating the associated government approvals—for energy projects with less-than-perfect environmental reviews, the future for energy infrastructure is bright. In fact, ambitious state climate and renewable energy goals, which will require the construction of a vast network of new infrastructure, also have little chance of being fully realized unless courts stop letting perfection be the enemy of the good when it comes to NEPA.

—Jeff Wood and Chris Carr are partners in the Environmental Law Practice of Baker Botts L.L.P. in the firm’s Washington, D.C., and San Francisco, Calif., offices, respectively.