On June 3, 2020, the U.S. Court of Appeals for the First Circuit vacated an air permit issued by the Massachusetts Department of Environmental Protection (DEP) for the construction of a new compressor station proposed by Algonquin Gas Transmission as part of its Atlantic Bridge natural gas pipeline project and remanded the matter to the agency for further analysis.  Town of Weymouth v. Massachusetts Department of Environmental Protection, et al., No. 19-1794 (Jun. 3, 2020).  In reviewing the agency’s decision, the First Circuit concluded that the DEP’s Best Available Control Technology (BACT) analysis was inadequate because the Agency failed to undertake its own independent analysis of the cost-effectiveness of the various options of controlling air emissions and instead relied on the Federal Energy Regulatory Commission’s (FERC) analysis.  The court also decided several other environmental arguments raised by the Town of Weymouth and other petitioners in favor of the DEP, including environmental justice and noise concerns, among other issues.

The proposed compressor is a necessary component of the Atlantic Bridge project to move gas from the Boston area up the coast to Algonquin’s affiliate, Maritimes & Northeast Pipeline, in Beverly, Massachusetts, and onward to consumers in New Hampshire, Maine, and New Brunswick.  The compressor relies on a Dry Low Nitrogen Oxide (NOx) combustion turbine, which burns a small amount of natural gas to generate pressure to allow gas to flow through the pipeline.  Algonquin chose this SoLoNOx turbine over other technologies, including an electric motor, because the electric motor would be more costly to operate though it would more effectively reduce NOx emissions.

FERC granted the project a certificate of public convenience and necessity in 2017, Algonquin Gas Transmission, LLC & Maritimes and Northeast Pipeline, L.L.C., 158 FERC ¶ 61,061, reh’g, 161 FERC ¶ 61,255 (2017), aff’d sub nom., Town of Weymouth v. FERC, No. 17-1135, 2018 WL 6921213, at *1 (D.C. Cir. Dec. 27, 2018) (unpublished opinion), and authorized the pipeline to proceed with construction in 2019.  See Algonquin Gas Transmission, LLC & Maritimes and Northeast Pipeline, L.L.C., 171 FERC ¶ 61,148 (2020) (denying rehearing of a November 27, 2019 order to proceed with construction).  FERC’s certificate and authorization to construct the project is expressly conditioned on the receipt of all other required permits, including the Massachusetts air permit.  Vacating that permit halts construction of the compressor station.

The court found that the DEP violated the Massachusetts Clean Air Act by failing to follow its own established procedures for assessing whether the substitution of an electric compressor motor was BACT.

A BACT review takes into account energy, environmental, economic impacts, and other costs that may be achievable through production processes and available methods, systems, and techniques for control of a contaminant (in this case NO_x).  The U.S. Environmental Protection Agency (EPA) and the DEP both apply a top-down, five-step test to evaluate BACT: (1) identify all control technologies, (2) eliminate technically infeasible options, (3) rank remaining control technologies by control effectiveness, (4) evaluate most effective controls and document results, and (5) select BACT.

DEP agreed with Algonquin’s conclusion that its proposed SoLoNox turbine was BACT.  In reaching this conclusion, Algonquin had excluded the electric motor option due to the $9-12 million cost of upgrading the exiting electric infrastructure without undertaking a full cost-effectiveness analysis as required by step four of the BACT analysis.  Algonquin also noted that FERC had concluded that an electric motor would not offer a significant environmental advantage over a natural gas-fired turbine.  DEP staff accepted Algonquin’s decision to exclude the electric motor option, relying on FERC’s assessment instead of making its own independent assessment.

The First Circuit found that DEP never calculated the cost effectiveness of an electric motor, noted that neither Algonquin nor the DEP attempted to perform the calculation, and concluded that the record accordingly did not contain sufficient information to determine cost effectiveness.  The Court reasoned that DEP’s own rules require it to determine cost-effectiveness before eliminating an option in step four of the BACT analysis and that it failed to do so, or to “at least do enough to make it clear that following the protocol would eliminate the electric motor as a cost effective option.”  Therefore, the First Circuit concluded that DEP’s decision to exclude the electric motor as an option was arbitrary and capricious.

Because the DEP erred with respect to its BACT finding, the court vacated and remanded the air permit, a result which allows DEP to reopen the administrative record to fill evidentiary gaps in support of the permit, such as evidence of the actual costs of the electric motor.  The court expressly stated that it expects any further proceedings to be limited to these purposes and that any hearing will be expedited.

This opinion makes clear that the DEP and other state and federal permitting agencies, as well as energy infrastructure developers, should follow the FERC’s lead in developing full administrative records in support of permits or certificates.  The Court’s decision makes clear that an agency like the DEP must carefully build its own record to ensure that its permits are not overturned in court.  Similarly, permit applicants should give those administrative agencies all proof necessary for the agency to make independent permitting decisions.  Taking steps to build a complete record early in the application process will ensure that critical energy infrastructure projects are able to move forward while the important interests of landowners, states, cities, towns, and environmental organization and their members are fully and fairly considered and environmental impacts are properly mitigated.

For consumers in northern New England, this decision may result in above-market energy prices in the coming year.  New England, and particularly northern New England, needs new natural gas pipeline capacity.  Though this project required little or no new pipeline, its construction has become controversial despite the fact that the potential environmental impacts of a new compressor station, particularly one located on an unused industrial parcel, is smaller than building new pipeline across an extended footprint affecting many landowners.  Although we expect the DEP to cure the record on remand and reissue the permit, the vacatur may mean that the in-service date of the project is not in place before the 2020-21 winter heating season when pipeline constraints in New England lead to above-market natural gas prices for power plants and other consumers, including residential consumers.