By Scott DiSavino and Stephanie Kelly
NEW YORK (Reuters) - The Trump administration's effort to cut red tape and speed up major energy projects has backfired in the case of the three biggest U.S. pipelines now planned or under construction.
All three have been stalled by successful legal challenges by environmental groups alleging the administration failed to apply the regulatory scrutiny required under the law.
The Republican administration tried to accelerate permits for two multi-billion-dollar natural gas lines and jumpstart the long-stalled Keystone XL crude oil pipeline that would start in Canada. Judges halted construction on all three over the past two years, ruling that the administration granted permits without conducting adequate studies or providing enough alternatives to protect endangered species or national forests.
The delays have caused the two giant gas pipelines - Dominion Energy Inc's Atlantic Coast and EQM Midstream Partners LP's Mountain Valley - to increase their cost estimates by hundreds of millions of dollars, according to the companies. The Atlantic Coast pipeline may never be completed unless the U.S. Supreme Court overturns a lower-court decision blocking its planned route, analysts said.
Lawsuits alleging regulatory lapses are not new, but they were unsuccessful during the administration of Trump's predecessor, Democrat Barack Obama. Plaintiffs lost five separate lawsuits alleging regulatory failures during Obama's administration, according to a Reuters review of court filings for major interstate gas pipes built since 2010.
"Environmental groups definitely have been going after these pipelines more aggressively," said Amy Vazquez, Houston-based partner at the law firm of Jones Walker, who specializes in energy litigation. "It's probably because they're having a fair bit of success."
The White House declined to comment. An Energy Department spokeswoman did not comment on the litigation but said the administration remains committed to streamlining energy infrastructure development.
D.J. Gerken, senior attorney with the Southern (NYSE:SO) Environmental Law Center in Asheville, North Carolina, represented the Sierra Club and other environmental groups in cases challenging the Atlantic Coast pipeline. He said the administration's rush to help industry move faster invited the legal challenges.
"Pressure from the utilities that stand to benefit from this project and the Trump administration produced flawed permits," he said.
'MYSTERIOUS' REGULATORY REVERSAL
In the case of Dominion's 600-mile (966-km) Atlantic Coast gas pipeline, from West Virginia to North Carolina, the U.S. Forest Service originally expressed skepticism about the project in 2016 when Obama was president, requesting alternative designs. But after Trump took office, the Forest Service changed course, and issued permits and a waiver for the line to cross the Appalachian Trail on national forestland in Virginia.
Petitioners including the Sierra Club, an environmental advocacy organization, sued the Forest Service, alleging the agency violated three federal acts in issuing a construction permit.
In December 2018, the U.S. Fourth Circuit Court of Appeals vacated the Forest Service decisions, with Judge Stephanie Thacker noting in her ruling that "the Forest Service's serious environmental concerns that were suddenly, and mysteriously, assuaged in time to meet a private pipeline company's deadlines."
The court said the Forest Service lacked authority to allow Dominion to build across the Appalachian Trail, which is administered by the Department of Interior. The Forest Service declined to comment.
In July, in another Atlantic Coast case brought by groups including the Sierra Club and Defenders of Wildlife, the Fourth Circuit vacated a U.S. Fish and Wildlife Service permit. Chief Judge Roger Gregory ruled that the agency, in "fast-tracking" decisions, lost sight of its mandate to protect threatened species.
The U.S. Fish and Wildlife Service declined to comment.
Atlantic Coast's original cost estimate of $6 billion to $6.5 billion has risen to $7 billion to $7.5 billion, the company said. The projected completion has shifted from late 2019 to late 2021.
The U.S. Supreme Court in October agreed to hear the Appalachian Trail case and could overrule the decision halting construction across that route.
Dominion has stopped construction on the pipe since December 2018. Spokesman Aaron Ruby said the company is confident the high court will rule in its favor and "uphold the longstanding precedent allowing pipeline crossings of the Appalachian Trail.”
RISING COSTS, LEGAL RISKS
The Fourth Circuit appeals court also stopped work on EQM’s 303-mile (488-km) Mountain Valley gas pipe from West Virginia to Virginia in June 2018, agreeing with the Sierra Club and other plaintiffs that permits issued by the Army Corps violated West Virginia rules related to stream crossings.
The state has since altered its rules, and the U.S. Army Corps of Engineers is in the process of issuing new permits for this pipeline and Atlantic Coast. But the Sierra Club is still challenging a Fish and Wildlife Service permit in a case that also is being heard by the Fourth Circuit.
EQM originally expected to complete Mountain Valley by the end of 2018 at a cost of $3.5 billion. The company said publicly that it expected the pipeline, which is mostly complete, will cost up to $5 billion and enter service in mid-2020.
Diana Charletta, chief operating officer at EQM, said that recent court decisions "have brought uncertainty and a high-level of scrutiny to the agencies’ decisions."
Officials at both Dominion and EQM dispute that approvals were fast-tracked. Dominion pointed out that it filed its application to build Atlantic Coast in 2014.
"I don't think any person can look at the regulatory review process for Atlantic Coast pipeline and say that it was fast-tracked," said Ruby, the Dominion spokesman.
EFFORT TO REVIVE KEYSTONE STALLS
TC Energy Corp's $8 billion Keystone XL pipeline, originally blocked by Obama in 2015, was revived by Trump in 2017 with the issuance of a presidential permit for the line, which would ship crude from Canada to the U.S. Gulf Coast.
Federal Judge Brian Morris in Montana blocked work on the pipe in November 2018, citing a lack of due diligence by federal regulators regarding greenhouse gas emissions and Native American land rights.
The Trump administration tried to circumvent that ruling by rescinding its original presidential permit and issuing a new one in March. That second permit now faces legal challenges from Native American groups.
TC Energy said it continues to monitor U.S. legal and regulatory issues while it plans construction. “We are committed to Keystone XL as it remains an important project for our company and for North America,” said Terry Cunha, spokesman for TC Energy.
Canadian producer Suncor Energy said in early September that the uncertain U.S. political landscape makes it unclear that the pipeline will be built. "That's one a lot of people are doing soul-searching about right now," said Suncor CEO Mark Little.