LNG Terminal in Baltimore Receives Federal Approval

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SandBar 7:3, October, 2008 LNG Terminal in Baltimore Receives Federal Approval AES Sparrows Point LNG v. Smith, 527 F.3d 120 (4th Cir. 2008). *Terra Bowling, J.D.* In a closely watched case in the Chesapeake Bay, the Fourth Circuit recently clarified the role of states with respect to the siting of liquefied natural gas (LNG) terminals. While some unanswered questions remain, the court did finally answer one important question: does the Natural Gas Act (NGA) completely preempt state regulation of LNG terminals? Background AES Sparrows Point LNG and Mid-Atlantic Express (collectively, AES) proposes to construct and operate a LNG import and re-gasification facility to receive, store, and convert LNG for residential, commercial, and industrial uses in the mid-atlantic Region. The proposed location is Sparrows Point, a heavily industrialized coastal area in Baltimore County, Maryland. AES encountered strong public opposition to the construction of the terminal from the outset. Spurred by the public outcry, in 2006 Baltimore County adopted Bill 71-06 amending the county’s zoning regulations to prevent the construction of an LNG terminal at Sparrows Point. The new zoning regulations stated that an LNG terminal could only be constructed with a “special exception” and must be located at least five miles from residential zones and 500 feet from businesses. AES challenged Bill 71-06, arguing that the bill was preempted by the NGA. The NGA grants the Federal Energy Regulatory Commission (FERC) “exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.”1 The NGA, however, contains a “savings clause” providing that the NGA does not affect the rights of states under the Coastal Zone Management Act (CZMA).2 The CZMA authorizes states to create coastal management plans (CMPs) setting forth the state’s “objectives, policies, and standards to guide public and private uses of lands and waters in the coastal zone.”3 Under the CZMA, states with approved CMPs have the authority to review federally permitted projects for consistency with those plans and conditionally veto projects which it finds inconsistent.4 The U.S. District Court for the District of Maryland found that Bill 71-06 was preempted by the NGA’s exclusive grant of authority to FERC and enjoined the county from enforcing the zoning ordinance.5 The county did not give up. In 2007, the county responded by passing Bill 9-07 and amending the zoning ordinance to list LNG terminals among the prohibited uses in the Chesapeake Bay Critical Area (CBCA).6 Because Sparrow’s Point is located within the CBCA, Bill 9-07 would effectively prevent the construction of the LNG facility. AES again filed suit, alleging that Bill 9-07 was preempted by the NGA. The county countered by arguing that the bill had been incorporated into the state’s critical area laws and was therefore part of Maryland’s CMP and saved from preemption. The Maryland Critical Area Commission had amended the county’s Chesapeake and Atlantic Coastal Bays Critical Area Protection Program (CAPP) to include Bill 9–07’s restriction on LNG terminal siting in coastal areas. The CAPP is one of the state laws identified in Maryland’s CMP. This time around, the District Court granted summary judgment in favor of the county concluding “that Bill 9–07 represented an exercise of Maryland’s ‘delegated authority’ under the CZMA and was thus saved from preemption.”7 Fourth Circuit’s Decision On appeal, the Fourth Circuit disagreed. First, with respect to the NGA, the court stated that “unless a state law prohibiting the siting of LNG terminals is exempted from A7 717b(e)(1)’s preemptive effect by some other provision of federal law, it is unenforceable.”8 The Fourth Circuit held that the NGA savings clause does protect state laws that are part of a state’s federally approved CMP, but “the County has no authority under the CZMA to enact a ban on LNG terminals unless, at a minimum, that ban is enacted pursuant to the procedures established by the CZMA.”9 Under the CZMA, an amendment to a CMP becomes effective only after the amendment has been approved by the National Oceanic and Atmospheric Admin istration (NOAA). The district court concluded that the bill did not constitute an amendment to the state’s CMP, but only “the implementation of it at the local level.”10 The Fourth Circuit disagreed. The CZMA defines amendments as “substantial changes in” the uses subject to management; special management areas; boundaries; authorities and organization; or coordination, public involvement and the national interest.11 The court held that a complete ban on terminals in the CBCA, not previously part of the state’s CMP, constituted a substantial change in the uses subject to management. Because the county never presented its amendment to NOAA for approval, it is not part of Maryland’s CMP. The Fourth Circuit stated that “mere adoption of Bill 9-07 into the County’s CAPP . . . is not sufficient to make Bill 9-07 part of Maryland’s CMP.”12 Conclusion The Fourth Circuit issued its decision on May 18, 2008. Although Maryland subsequently determined that the project was not consistent with its CMP, the Department of Commerce overrode the state’s objection on June 26, 2008.13 The Department concluded that the natural interest served by the facility in helping to meet regional energy demands outweighed the project’s adverse coastal effects14 and that the impact of dredging on fish and aquatic vegetation would not be significant.15 FERC may now proceed with normal permitting and licensing procedures for the AES terminal. Endnotes 1. 15 U.S.C. A7 717b(e)(1). 2. Id. 3. 16 U.S.C. A7 1453(12). 4. Id. A7 1456(c)(3)(A). 5. AES Sparrows Point LNG, LLC v. Smith, 470 F. Supp.2d 586, 601 (D. Md. 2007). 6. The CBCA was established in 1984 by the Maryland Chesapeake Bay Protection Act. The Act requires the counties and municipalities surrounding the Chesapeake Bay to implement a land use and resource management program designed to mitigate the damaging impact of water pollution and loss of natural habitat, while also accommodating the jurisdiction’s future growth. Maryland Critical Areas Commission, FAQs, http://www.dnr.state.md.us/criticalarea/faq.html#1 . 7. AES Sparrows Point LNG v. Smith, 527 F.3d 120, 125 (4th Cir. 2008). 8. Id. at 125-26. 9. Id. at 126. 10. Id. 11. 15 C.F.R. A7 923.80(d). 12. AES Sparrows, 527 F.3d at 126. 13. Decision and Findings by the U.S. Secretary of Commerce in the Consistency Appeal of AES Sparrows Point LNG and Mid-Atlantic Express, LLC from an Objection by the State of Maryland (June 26, 2008) available at http://www.ogc. doc.gov/czma.htm . 14. NOAA, Press Release, Department of Commerce Decides Two Federal Consistency Appeals, http://www.noaanews.noaa.gov/stories2008/ 20080627_appeals.html . 15. Id.
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SandBar 7:3, October, 2008

AES Sparrows Point LNG v. Smith, 527 F.3d 120 (4th Cir. 2008).

Terra Bowling, J.D.

In a closely watched case in the Chesapeake Bay, the Fourth Circuit recently clarified the role of states with respect to the siting of liquefied natural gas (LNG) terminals. While some unanswered questions remain, the court did finally answer one important question: does the Natural Gas Act (NGA) completely preempt state regulation of LNG terminals?

Background
AES Sparrows Point LNG and Mid-Atlantic Express (collectively, AES) proposes to construct and operate a LNG import and re-gasification facility to receive, store, and convert LNG for residential, commercial, and industrial uses in the mid-atlantic Region. The proposed location is Sparrows Point, a heavily industrialized coastal area in Baltimore County, Maryland.

AES encountered strong public opposition to the construction of the terminal from the outset. Spurred by the public outcry, in 2006 Baltimore County adopted Bill 71-06 amending the county’s zoning regulations to prevent the construction of an LNG terminal at Sparrows Point. The new zoning regulations stated that an LNG terminal could only be constructed with a “special exception” and must be located at least five miles from residential zones and 500 feet from businesses.

AES challenged Bill 71-06, arguing that the bill was preempted by the NGA. The NGA grants the Federal Energy Regulatory Commission (FERC) “exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.”1 The NGA, however, contains a “savings clause” providing that the NGA does not affect the rights of states under the Coastal Zone Management Act (CZMA).2 The CZMA authorizes states to create coastal management plans (CMPs) setting forth the state’s “objectives, policies, and standards to guide public and private uses of lands and waters in the coastal zone.”3 Under the CZMA, states with approved CMPs have the authority to review federally permitted projects for consistency with those plans and conditionally veto projects which it finds inconsistent.4 The U.S. District Court for the District of Maryland found that Bill 71-06 was preempted by the NGA’s exclusive grant of authority to FERC and enjoined the county from enforcing the zoning ordinance.5

The county did not give up. In 2007, the county responded by passing Bill 9-07 and amending the zoning ordinance to list LNG terminals among the prohibited uses in the Chesapeake Bay Critical Area (CBCA).6 Because Sparrow’s Point is located within the CBCA, Bill 9-07 would effectively prevent the construction of the LNG facility.

AES again filed suit, alleging that Bill 9-07 was preempted by the NGA. The county countered by arguing that the bill had been incorporated into the state’s critical area laws and was therefore part of Maryland’s CMP and saved from preemption. The Maryland Critical Area Commission had amended the county’s Chesapeake and Atlantic Coastal Bays Critical Area Protection Program (CAPP) to include Bill 9–07’s restriction on LNG terminal siting in coastal areas. The CAPP is one of the state laws identified in Maryland’s CMP. This time around, the District Court granted summary judgment in favor of the county concluding “that Bill 9–07 represented an exercise of Maryland’s ‘delegated authority’ under the CZMA and was thus saved from preemption.”7

Fourth Circuit’s Decision
On appeal, the Fourth Circuit disagreed. First, with respect to the NGA, the court stated that “unless a state law prohibiting the siting of LNG terminals is exempted from A7 717b(e)(1)’s preemptive effect by some other provision of federal law, it is unenforceable.”8 The Fourth Circuit held that the NGA savings clause does protect state laws that are part of a state’s federally approved CMP, but “the County has no authority under the CZMA to enact a ban on LNG terminals unless, at a minimum, that ban is enacted pursuant to the procedures established by the CZMA.”9 Under the CZMA, an amendment to a CMP becomes effective only after the amendment has been approved by the National Oceanic and Atmospheric Admin istration (NOAA).
The district court concluded that the bill did not constitute an amendment to the state’s CMP, but only “the implementation of it at the local level.”10 The Fourth Circuit disagreed. The CZMA defines amendments as “substantial changes in” the uses subject to management; special management areas; boundaries; authorities and organization; or coordination, public involvement and the national interest.11 The court held that a complete ban on terminals in the CBCA, not previously part of the state’s CMP, constituted a substantial change in the uses subject to management. Because the county never presented its amendment to NOAA for approval, it is not part of Maryland’s CMP. The Fourth Circuit stated that “mere adoption of Bill 9-07 into the County’s CAPP . . . is not sufficient to make Bill 9-07 part of Maryland’s CMP.”12

Conclusion
The Fourth Circuit issued its decision on May 18, 2008. Although Maryland subsequently determined that the project was not consistent with its CMP, the Department of Commerce overrode the state’s objection on June 26, 2008.13 The Department concluded that the natural interest served by the facility in helping to meet regional energy demands outweighed the project’s adverse coastal effects14 and that the impact of dredging on fish and aquatic vegetation would not be significant.15 FERC may now proceed with normal permitting and licensing procedures for the AES terminal.

Endnotes
1.   15 U.S.C. A7 717b(e)(1).
2.   Id.
3.   16 U.S.C. A7 1453(12).
4.   Id. A7 1456(c)(3)(A).
5.   AES Sparrows Point LNG, LLC v. Smith, 470 F. Supp.2d 586, 601 (D. Md. 2007).
6.   The CBCA was established in 1984 by the Maryland Chesapeake Bay Protection Act. The Act requires the counties and municipalities surrounding the Chesapeake Bay to implement a land use and resource management program designed to mitigate the damaging impact of water pollution and loss of natural habitat, while also accommodating the jurisdiction’s future growth. Maryland Critical Areas Commission, FAQs, http://www.dnr.state.md.us/criticalarea/faq.html#1 .
7.   AES Sparrows Point LNG v. Smith, 527 F.3d 120, 125 (4th Cir. 2008).
8.   Id. at 125-26.
9.   Id. at 126.
10. Id.
11. 15 C.F.R. A7 923.80(d).
12. AES Sparrows, 527 F.3d at 126.
13. Decision and Findings by the U.S. Secretary of Commerce in the Consistency Appeal of AES Sparrows Point LNG and Mid-Atlantic Express, LLC from an Objection by the State of Maryland (June 26, 2008) available at http://www.ogc. doc.gov/czma.htm .
14. NOAA, Press Release, Department of Commerce Decides Two Federal Consistency Appeals, http://www.noaanews.noaa.gov/stories2008/ 20080627_appeals.html .
15. Id.