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Court Rules Local Zoning Ban on LNG Facilities Preempted by NGA

May 26, 2008
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In a decision that could have a broad impact on communities seeking to block liquefied natural gas (LNG) facilities, a federal appeals court in Richmond, VA, has ruled that a Baltimore County zoning ordinance that bans the construction of LNG facilities in certain Chesapeake Bay coastal areas is preempted by the Natural Gas Act (NGA).

The U.S. Court of Appeals for the Fourth Circuit reversed a June 2007 decision by the U.S. District Court for the District of Maryland that held that Baltimore County's ordinance was not preempted by the NGA and was within the delegated authority of the state of Maryland and Baltimore County under the Coastal Zone Management Act (CZMA).

In direct contrast with the lower court, the Fourth Circuit held that the zoning ordinance was not part of Maryland's federally approved Coastal Zone Management Plan (CMP), and thus was not preempted from the NGA as an exercise of Maryland's rights under the CZMA.

"The Court of Appeals rejected the reasoning of the district court, finding that the zoning ordinance was an 'amendment' to the CMP because it imposed a categorical ban on LNG terminal siting that the CMP did not previously contain. Since Maryland never presented the amendment to the CMP to the National Oceanic and Atmospheric Administration as required by the CZMA, the court of appeals ruled that '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. Unless the CMP is properly amended, a state cannot unilaterally amend its CMP in violation of the CZMA's requirement of federal approval,'" the Washington, DC-based law firm of Van Ness Feldman wrote in an analysis of the court ruling.

"While the decision holds that unless the zoning ordinance is made part of the CMP it cannot be saved from preemption under the NGA, the decision does not [address] the question whether, in light of FERC's 'exclusive' LNG siting authority, [Maryland's] categorical ban on LNG terminal siting...would be upheld if it were made part of the state's CMP," Van Ness said.

In June 2007, Arlington, VA-based AES Corp. challenged the district court's ruling, which dealt a blow to the energy company's plans to build its Sparrows Point LNG terminal in Baltimore, MD (see NGI, July 9, 2007). AES argued at the time that Baltimore County's zoning ordinance violated the Energy Policy Act of 2005's amendments to the NGA, which gave the Federal Energy Regulatory Commission sole jurisdiction over the siting of LNG facilities.

In January 2007 the Baltimore County Council passed the zoning ordinance barring the "establishment or expansion" of LNG facilities in all Chesapeake Bay critical areas. The county council's measure was introduced and voted on within days of AES filing its application at FERC to build the Sparrows Point LNG project on the site of a former steel mill on a peninsula that juts into Chesapeake Bay in the city of Baltimore (see NGI, Jan. 15, 2007).

Maryland's Critical Areas Commission, which oversees development in the state's coastal areas, approved the county's zoning ordinance prohibiting LNG facilities in certain Chesapeake Bay coastal areas. The commission said its action was needed to formally incorporate the new law into the county's coastal plan (see NGI, June 18, 2007).

The Sparrows Point project, which was been the target of intense opposition by state and federal politicians, would have about 1.5 Bcf/d of regasification capacity with a potential for expansion to 2.25 Bcf/d. Regasified LNG would be delivered to regional markets via the Mid-Atlantic Express pipeline, an 87-mile, 30-inch diameter pipeline that would extend from the terminal to connections with interstate pipelines at Eagle, PA. The pipeline also would include connections with local distribution company Baltimore Gas & Electric.

The project, including three LNG storage tanks, would be located on 80 acres within the existing Sparrows Point Industrial Complex in Baltimore County. The site was previously owned by Bethlehem Steel and housed a steel manufacturing and shipbuilding facility.

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