The proposed Islander East Pipeline, which has been held up in an ongoing legal dispute with the state of Connecticut, won a key victory in the U.S. District Court of New Haven last Friday, but the battle is far from over.

The U.S. District Court rejected arguments by Connecticut's attorney general, the state Department of Environmental Protection (DEP) and the Town of Branford, CT, ruling that the proposed Connecticut-to-New York natural gas pipeline did not require a state permit under Connecticut's Structures, Dredging and Fill Act. Since the project already has been approved by the Federal Energy Regulatory Commission, the court said the FERC certificate superseded the state permitting requirement.

Bill Yardley, senior vice president of Islander East, called the district court decision a "significant step toward beginning construction of this important project this year."

However, Islander East still has a petition for review pending before the U.S. Court of Appeals for the Second Circuit in New York with respect to Connecticut's rejection of a water quality permit for the pipeline project. Oral arguments in that case are scheduled for April 10. Islander East petitioned the court in December after the DEP denied -- for a second time -- the proposed pipeline's request for a water quality permit.

After conducting a court-ordered review of its February 2004 rejection of Islander East's request for a water quality permit, the DEP in late 2006 concluded that the proposed pipeline route would damage the water quality, natural resources and prime shellfish beds in Long Island Sound.

The second rejection came nearly three months after the Second Circuit ruled that a Connecticut agency's initial denial of a water permit for the Islander East Pipeline was both "arbitrary and capricious." It remanded the case to the state agency to conduct a "complete and reasoned" review that complied with federal law. The court said the agency's initial decision appeared to be "arbitrary and capricious because the CTDEP failed adequately to explain or support its denial with record evidence; did not acknowledge or explain contradictory record evidence; and neglected to consider important aspects of the problem."

Islander East, which is jointly sponsored by Spectra Energy (formerly Duke Energy) and KeySpan, previously challenged the Connecticut DEP decision in state Superior Court in Hartford, CT, where the case had languished. The Energy Policy Act of 2005 (EPAct), however, gave interstate pipelines the power for the first time to seek recourse in the federal courts when states oppose FERC-approved projects and refuse to issue permits.

Islander East was the first energy-related company to file a court challenge based on language contained in EPAct.

The Islander East pipeline project and the related Algonquin Gas Transmission facilities were approved by FERC in September 2002 (see Daily GPI, Sept. 19, 2002), and were scheduled to be completed and in service in September 2004. FERC granted an extension for the project.

The state of Connecticut initially interrupted the Islander East project by claiming that 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 Daily GPI, May 7, 2004).

The $180 million pipeline project, if built, initially would deliver 285,000 Dth/d of natural gas from New Haven, 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 Spectra 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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