Fourth Circuit CZMA Decision Strikes Down State Law Designed to Block Siting of LNG Terminals and Requires States to Seek Federal Approval for Amendments to Coastal Zone Management Plans

On May 19th, the U.S. Court of Appeals for the Fourth Circuit reversed a decision of the U.S. District Court for the District of Maryland, and held that a Baltimore County Council zoning amendment prohibiting the siting of liquefied natural gas (LNG) facilities in previously designated Chesapeake Bay Critical Areas in Baltimore County was preempted by the Natural Gas Act (NGA).  The Fourth Circuit held that the zoning amendment was not part of Maryland’s federally approved Coastal Zone Management Plan (CMP), and therefore not saved from preemption as an exercise of Maryland’s rights under the Coastal Zone Management Act (CZMA).

Background

In 2005, Congress amended the Natural Gas Act (NGA) to clarify the authority of the Federal Energy Regulatory Commission (FERC) over LNG terminal siting.  Section 311(a)(1) of the Energy Policy Act 2005 (EPAct 2005) granted FERC the “exclusive authority” to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.  Section 311(d), however, provides that nothing in the NGA affects “the rights of States” under the CZMA, the Clean Air Act, and the Federal Water Pollution Control Act. 

AES Sparrows Point LNG, LLC proposed to site an LNG terminal on Sparrows Point in Baltimore County, Maryland.  On June 19, 2006, the Baltimore County Council approved an amendment to its zoning rules providing that an LNG terminal could be constructed only under a “special exception.” This zoning amendment was struck down by the U.S. District Court for the District of Maryland on January 23, 2007. See discussion of AES I in the issue alert “U.S. District Court Finds Local Zoning Law Preempted by FERC’s Exclusive LNG Terminal Siting Authority under the Natural Gas Act.” 

On February 5, 2007, the Baltimore County Council passed a second zoning amendment, Bill 9-07, which added siting of LNG terminals to the list of prohibited activities in Baltimore County’s environmentally sensitive Critical Areas.  AES filed an action seeking declaratory relief on grounds that the zoning amendment was unconstitutional and was preempted by the NGA.  On June 22, 2007, the District Court upheld the local zoning amendment (AES II), rejecting AES’ argument that the local zoning change was an amendment to Maryland’s CMP that was not enforceable unless specifically approved by the Secretary of Commerce.  The District Court reasoned that Bill 9-07, “unlike the first zoning ordinance, only prohibits the construction of LNG facilities in Baltimore County's environmentally sensitive Chesapeake Bay Critical Areas and has now been incorporated into the State of Maryland's Coastal Zone Management Act program.” See discussion of AES II in the issue alert “U.S. District Court Upholds State Authority Under Coastal Zone Management Act to Block Siting of LNG Terminals.”  The District Court found that the zoning ordinance was not an amendment to Maryland’s CMP, but was an exercise of Maryland’s “delegated authority” under the CZMA.

The Fourth Circuit’s Decision

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 (NOAA) 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.

Impact of the Decision

This decision clarifies the “rights of states” under the CZMA as it relates to FERC’s “exclusive” authority over the siting of LNG terminals.  The CZMA provides the mechanism for the exercise each state’s rights in its CMP.  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 reach the question whether, in light of the FERC’s “exclusive” LNG siting authority, the categorical ban on LNG terminal siting in Bill 9-07 would be upheld if it were made part of the state’s CMP.

The decision may have a broader impact on developments within or affecting states’ coastal zones, outside the LNG context.  Under the CZMA, states with approved CMPs exercise authority to determine whether oil and gas development on the U.S. Outer Continental Shelf (OCS), hydroelectric projects licensed by FERC, and other activities within or affecting states’ coastal zones are consistent with its NOAA-approved CMP.  The decision provides guidance to states on what state actions may be deemed “amendments” to a state’s CMP and, thus, enforceable against these proposed activities.