Fourth Circuit Holds Local Anti-LNG Law to be Preempted by Natural Gas Act
Submitted by Randy McMamus & Adam White, Baker Botts L.L.P.
On May 19, 2008, the U.S. Court of Appeals for the Fourth Circuit issued a decision striking down a Baltimore County ordinance enacted to block the proposed siting of a liquefied natural gas (“LNG”) import terminal, on the grounds that the local law was preempted by the “exclusive authority” of the Federal Energy Regulatory Commission (“FERC”) to authorize the siting, construction and operation of LNG terminals under Section 3 of the Natural Gas Act (“NGA”). The Fourth Circuit reversed a lower court decision that the ordinance, adopted as an amendment to Baltimore County’s coastal plan, was saved from preemption by the NGA provision preserving “the rights of States under” the federal Coastal Zone Management Act (“CZMA”).
BACKGROUND
In 2007, AES Sparrows Point LNG (“AES”) applied to FERC for approval to construct and operate an LNG import terminal at a shipyard adjacent to a steel plant in Baltimore County, Maryland. Section 3 of the NGA , as amended by Section 311 of the Energy Policy Act of 2005 (“EPAct 2005”), grants FERC “the exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.”
Baltimore County officials objected to the proposed AES Sparrows Point project and, in 2006, enacted a zoning ordinance prohibiting the construction of an LNG terminal at the site. AES filed suit in the U.S. District Court for the District of Maryland, requesting a declaration that the local law was “preempted” by FERC’s authority under the NGA and an injunction against enforcement of the LNG ban. The district court ruled in favor of AES, finding that the NGA “clearly reflect[s] the intent of the United States Congress to preempt local governments with respect to the siting of [LNG] facilities.” The Court noted that under the EPAct 2005 amendment, codified at Section 3(e) of the NGA, states and localities are given an advisory role on safety, security and matters of local concern within the context of FERC’s authorization process, but that Section 3 of the NGA “leaves[s] state and local governments no residual power to take actions that would effectively approve or deny proposals for the siting of LNG terminals.” AES Sparrows Point LNG, LLC v. Smith, 470 F. Supp. 2d 586 (D. Md. 2007) (“AES I”).
Baltimore County thereafter enacted a second zoning ordinance banning LNG terminals in the coastal area as an amendment to the County’s coastal plan. In response to a second lawsuit filed by AES on preemption grounds, the County claimed that, because its ordinance was adopted under procedures approved as part of a statewide coastal management program, the ordinance was an element of the state’s federally-approved program under the CZMA.
The CZMA permits a state to propose a program for coastal regulation to the National Oceanic and Atmospheric Administration (“NOAA”), which, if approved, allows the state to review federally-permitted projects affecting its coastal area. In this review, a state may pass on the project’s “consistency” with “enforceable policies” of its coastal management plan. Like thirty-seven other states with coastal areas, Maryland has an approved Coastal Management Plan (“CMP”).
By tying the local ordinance to its coastal plan and securing state approval of this amendment, Baltimore County argued that the ordinance was not preempted by FERC’s exclusive authority because of a proviso in the NGA that FERC’s authority does not “affect the rights of States under” three federal statutes, including the CZMA. The district judge agreed, ruling that the new ordinance was an “implementation,” “at the local level,” of the state’s previously-approved CMP and, as such, fell within the scope of the CZMA “savings clause” in Section 3(d) of the NGA.
THE FOURTH CIRCUIT STRIKES DOWN THE LOCAL ORDINANCE
On appeal, the Fourth Circuit unanimously reversed the District Court. It held that Baltimore County’s local ordinance was preempted by the NGA, “reasoning” that the ordinance could not possibly fall within the “rights of states” under the CZMA because NOAA had not approved the incorporation of the ordinance into Maryland’s CMP under the procedures for amendment set out in the CZMA.
As the Court explained, the CZMA specifically requires that all changes to a state’s coastal management program — be they minor “routine program changes” or major “amendments” — be presented to NOAA for approval: “Until NOAA approves [the Baltimore County ordinance] or fails to take action after being presented with it, it is not part of Maryland’s CMP and cannot be saved from preemption by the NGA’s Savings Clause.”
The Court held open the possibility that even NOAA approval of the local ordinance would not save it from preemption, an argument raised by AES and specifically accepted by the Chief Judge of the Fourth Circuit in a concurrence.
The Fourth Circuit’s decision provides useful guidance on the administration of the CZMA, as well as the interaction of the CZMA and the NGA for projects subject to FERC approval. The Court’s holding that no state or local government may change its CZMA program without securing NOAA approval applies to the CZMA generally, and not merely to preemption cases. It reiterates that the authority granted states under the CZMA remains subject to the oversight of the federal government, and that states cannot purport to change their CZMA programs without seeking federal permission to do so. With respect to the NGA, the Fourth Circuit’s decision affirmed that states cannot “veto” LNG projects by stepping outside of the process set forth in the NGA and the CZMA.
