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Connecticut AG, Islander East Square Off In Court Over Pipe Project

The state of Connecticut challenged in federal court last Tuesday the constitutionality of a provision in the new energy law that gives companies recourse to seek federal court review of state actions that block the construction of natural gas pipelines and other energy projects.

Connecticut Attorney General Richard Blumenthal and attorneys for Islander East, a stalled Connecticut-to-Long Island pipeline project, argued their cases before the U.S. Court of Appeals for the Second Circuit in New York. Islander East is believed to be the first company to seek federal court review of a state's action based on provisions in the Energy Policy Act of 2005 (EPACT), which makes this a test case.

Islander East filed the petition in the New York appellate court in August to force the Connecticut Department of Environmental Protection (DEP) to award a water quality certificate that would pave the way for the construction of the proposed 50-mile, 24-inch diameter gas pipeline. The DEP denied Islander East's request for a water quality permit in February 2004.

Islander East, which is jointly sponsored by Duke Energy and KeySpan, initially challenged the DEP's decision in the summer of 2004 in state Superior Court in Hartford, CT. But the Energy Policy Act, which was signed into law in August, gave Islander East recourse to move the case into federal court.

Under EPACT, "the court is obligated to act expeditiously" on Islander East's petition, said John Sheridan, a spokesman for Duke Energy. He noted that Islander East's case is consistent with the findings of New York state, the Federal Energy Regulatory Commission and the Department of Commerce with respect to the need for the pipeline project.

At issue in the case is whether the DEP was legally justified in denying the water permit to Islander East, Sheridan told NGI. Islander East's position is that the state agency was not justified since it has a "narrow role" under the federal Clean Water Act in processing water permits, he said.

Blumenthal argued that EPACT, which amended the Natural Gas Act, strips the state of its environmental authority and violates the U.S. Constitution, which bars a private party from challenging a state agency's administrative action in federal court. The new energy law robs states of their "sovereign immunity," he said, in urging the court to reject Islander East's petition for review of the DEP ruling.

While Islander East has launched a "wide-ranging assault" on the state's decision to withhold a water permit, the state's action "was an appropriate exercise of its authority and was in conformity with its duly adopted water quality standards," Connecticut said in a brief filed with the court.

Even if the court upholds the lawfulness of EPACT, Blumenthal said the new law could not be applied retroactively to Connecticut's denial of a permit to Islander East. "Each and every act of the DEP germane to this appeal occurred between 18 and 42 months before the EPACT was signed into law on Aug. 8, 2005," the court brief noted. "The EPACT contains no express statement by Congress that it is to apply retroactively."

Blumenthal's office indicated that it expects a decision from the Second Circuit within the next several weeks. If the ruling is unfavorable to the state of Connecticut, it plans to ask the Supreme Court to review the case.

Islander East and the related Algonquin Gas Transmission facilities were approved by the Federal Energy Regulatory Commission in September 2002, and were scheduled to be completed and in service in September 2004. After receiving two deadline extensions from FERC due to Islander East's dispute with Connecticut, the project is now targeted for completion in September 2007.

The state of Connecticut initially interrupted the Islander East project by claiming it was inconsistent with its Coastal Zone Management Act statute, which gives states the right to block projects that they view as detrimental to their coastal areas. But former Commerce Department Secretary Donald Evans in May 2004 overturned the state's decision (see NGI, May 10, 2004). Connecticut now is withholding the water quality permit to prevent the construction of the pipeline.

The $180 million gas pipeline project, if ever built, initially would deliver 285,000 Dth/d of natural gas from New Haven, CT, across Long Island Sound to Suffolk County (Long Island) near Yaphank, NY, with a lateral to be constructed to Calverton, NY. Additionally, Algonquin, a subsidiary of Duke Energy, would loop about 13.7 miles of existing pipeline in Connecticut and add a new compressor station in Cheshire, CT. As a result of these upgrades in Connecticut, Algonquin would interconnect with Islander East.

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