In an issue of first impression, in Matter of Proposed Construction of Compressor Station (CS327), No. A-3616-20, 2023 WL 5614411 (N. J. Super. Ct. Aug. 31, 2023), the New Jersey Superior Court rejected the New Jersey Department of Environmental Protection (“DEP”)’s interpretation of the Highlands Water Protection and Planning Act (the “Highlands Act”) and found that a permittee’s project upgrade must be “routine” to be exempted from the strict permitting requirements of the Highlands Act.

Tennessee Gas Pipeline company, LLC (“Tennessee”) owns and operates a natural gas transmission system stretching from the Gulf states to New England.  In order to increase the capacity of its pipeline system, Tennessee planned to construct a new station and appurtenant facilities in West Milford, New Jersey.  Because the compressor station was to be located in the Highlands Preservation Area, it was subjected to the stringent water and natural resource protection standards of the Highlands Act.  The DEP issued a Highlands Applicability Determination (“HAD”) to Tennessee exempting construction of the new compressor station from permitting review under N.J.S.A 13:20-28(a)(11) (“Exemption 11”).  Exemption 11 relieves a public utility from having to obtain a Highlands Preservation Area Approval for "routine maintenance and operations, rehabilitation, preservation, reconstruction, repair, or upgrade of public utility lines, rights of way or systems” so long as “the activity is consistent with the goals and purposes of the Highlands Water Protection and Planning Act, N.J.S.A. 13:20-1 to 35.  DEP issued the HAD without determining whether the new compressor station qualifies as a “routine upgrade” to Tennessee’s existing gas pipeline system because DEP maintained that “routine” in Exemption 11 modifies only “maintenance and operations” rather than “upgrade.”  Several environmental advocacy groups appealed the HAD arguing that under basic rules of statutory construction an upgrade must be “routine” to qualify for the HAD, and the compressor station constituted a massive expansion in operations.

The court agreed with the appellants, finding that based on the language of the statute, the statutory context, and the history of the Highlands Act, the legislature only intended to exempt routine upgrades, not all upgrades, from the statutory requirements.  The court noted that while ordinarily it accords substantial deference to an agency’s interpretation of a statute the agency is charged with enforcing, no deference is required when that interpretation is contrary to the statutory language, or if the agency’s interpretation undermines the Legislature’s intent.  Referencing the preamble of the Highlands Act, the court held that the Legislature’s intent was to protect and preserve an “area of exceptional natural resource value,” and therefore exemptions from the Highlands Act must be strictly construed. 

The court held it was not plain from the language of the statute whether “routine” modified only “maintenance and operations” or each noun in the list, including “upgrade.”  Accordingly, while criticizing DEP and Tennessee’s analysis as “myopically focused on sentence structure,” the court looked to the legislative intent, holding the intention of the Highlands Act was to “prohibit or limit to the maximum extent possible construction or development which is incompatible with preservation.” N.J.S.A. 13:20-10(b)(9). 

Ultimately the court held, “[g]uided by the Legislature’s express declaration ‘that it is in the public interest of all the citizens of the State’ that the Preservation area be subject ‘to stringent water and natural resource protection standards, policies, planning and regulation,’ [] we cannot accept the Department and Tennessee’s position that the Legislature intended Exemption 11 for ‘the routine maintenance and operations, rehabilitation, preservation, reconstruction, repair, or upgrade of public utility lines, rights of way, or systems in the Preservation Area to exempt any upgrade a utility might propose and, specifically, to exempt Tennessee’s construction of a new compressor station and appurtenant facilities, including its own electric substation, at a cost of over $100 million with no showing it constituted only a ‘routine upgrade’ of its gas pipeline system.”   Accordingly, the court vacated the HAD and remanded to DEP to consider whether the proposed compressor station can qualify as a “routine upgrade” to its pipeline system.

In addition to narrowing the exemptions available to permittees under the Highlands Act, this decision appears to follow the recent trend in cases such as Sackett v. EPA demonstrating that courts are no longer automatically deferring to an agency’s interpretation of a statute, particularly where the court finds the agency’s interpretation is inconsistent with the legislative intent. 

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