Fourth Circuit Vacates West Virginia Water Quality Permit for Mountain Valley Pipeline

We noted on March 31 that Equitrans ETRN made some small steps forward with the Mountain Valley Pipeline with the approval of its Virginia water permit by the U.S. Court of Appeals for the Fourth Circuit and a favorable U.S. Fish and Wildlife Service biological opinion. At the same time, we noted that the West Virginia water quality permit would be a challenge as the Fourth Circuit had yet to rule on it. The court vacated the permit, which was the worst-case outcome. The West Virginia permit is also linked to the U.S. Army Corps of Engineers’ Clean Water Act section 404 water crossing permit, which includes West Virginia. Our narrow moat rating and $10.80 per share fair value estimate are unchanged.

The court continues to show little deference to state regulators. The Fourth Circuit noted the Department of Environmental Protection failed to include conditions requiring compliance with the state oil and gas construction permit, it made a mistake in relying on U.S. Environmental Protection Agency standards for upland construction, and its decision to avoid a water quality anti-degradation review also violated state regulations. Further, the court noted that the project had violated the state oil and gas construction general permit 139 times and water quality standards 49 times.

Options at this stage include West Virginia perhaps deciding to waive its review, for MVP to rewrite and resubmit its permit to the same court, or to refile and ask the state to waive its review if it does not act in a year.

Equitrans noted that it still sees a path toward a 2023 in-service date, which we consider very optimistic at this stage, given it would need four to five months of construction, so the pathway is increasingly narrow.