A federal appeals court ruling over a hydropower project in California and Oregon could have major implications for oil and gas pipelines held up by state regulators refusing to issue water quality certifications.

The ruling in U.S. Court of Appeals for the District of Columbia (DC) Circuit last Friday comes less than three months after the court put a separate lawsuit Constitution Pipeline Co. LLC filed against FERC on hold, pending a decision in the case Hoopa Valley Tribe v. FERC et al, No. 14-1271.

A three-judge panel ruled that the Federal Energy Regulatory Commission should proceed with a review of the Klamath Hydroelectric Project, a 2004 proposal by electric utility PacifiCorp over a series of dams along the Klamath River in California and Oregon. Court records show PacifiCorp reached a settlement in 2010 with various stakeholders, including regulators from both states, to decommission the lower dams by 2020.

The court records also show that under the settlement, PacifiCorp and the states agreed to defer the one-year statutory limit under Section 401 of the Clean Water Act "by annually withdrawing and resubmitting the water quality certification requests" which FERC uses as a prerequisite for its review. Licenses for the dams, first issued to a predecessor of PacifiCorp in 1954, expired in 2006.

The Hoopa Valley Tribe, whose reservation is downstream of the project and which did not sign the settlement, argued in 2012 that California and Oregon waived their Section 401 authority and that PacifiCorp had failed to pursue licensing for the project. The tribe appealed after FERC denied the tribe's request for a petition and a rehearing in 2014.

The court ultimately sided with the tribe. Senior Circuit Judge David Sentelle wrote that Section 401 "requires state action within a reasonable period of time, not to exceed one year." Circuit Court Judges Thomas Griffith and Cornelia Pillard concurred.

"California and Oregon's deliberate and contractual idleness defies this requirement," Sentelle wrote. "By shelving water quality certifications, the states usurp FERC's control over whether and when a federal license will issue."

Sentelle also noted FERC's statement that "it is now commonplace for states to use Section 401 to hold federal licensing hostage. At the time of briefing, 27 of the 43 licensing applications before FERC were awaiting a state's water quality certification, and four of those had been pending for more than a decade," Sentelle wrote, emphasizing his statement.

Several natural gas pipelines have been stymied by state regulators that have refused to issue Section 401 permits.

Constitution and its sponsors have been battling with the New York State Department of Environmental Conservation (DEC) over a Section 401 permit since 2016. The company had asked the DC Circuit to hear its contention that FERC erred when it ruled the DEC did not waive its authority on issuing the permit, and the Commission's subsequent denial for a rehearing request over the matter (Constitution Pipeline Co. v. FERC, No. 18-1251).

The DEC has also denied subsidiaries of National Fuel Gas Co. permits for the Northern Access expansion project, but FERC determined that state regulators had waived their authority. Separate applications for 401 permits in New York and Pennsylvania for Transcontinental Gas Pipe Line's Northeast Supply Enhancement Project have also been on hold. Meanwhile, PennEast Pipeline Co. LLC has been denied permits by the New Jersey Department of Environmental Protection.