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Sierra Club v. Dominion Cove Point Lng, L.P.

Court of Special Appeals of Maryland

February 28, 2014


Page 83

Appeal from the Circuit Court for Calvert County. James P. Salmon, Judge.

Argued by: JoAnne Spalding of San Francisco, CA (Craig Holt Segall, Sierra Club Environmental Law Program of Washington, D.C., Roy L. Mason of Annapolis, MD) all on the brief for Appellant.

Argued by: Christopher Handman & Mary Helen Wimberly of Washington, D.C. (David J. Hensler, Ellen S. Kennedy, Hogan Lovells U.S. LLP of Washington, D.C., Robert H. Harvey, Jr. of Prince Frederick, MD, Jefferson Wright, Katherine B. Hill, Joshua Gayfield, Miles and Stockbridge, PC of Baltimore, MD) on the brief for Appellee.

Panel: Meredith, Kehoe, Hotten, JJ.[1]


Page 84

[216 Md.App. 325] Hotten, J.

The Sierra Club, a non-profit California corporation, and the Sierra Club Maryland Chapter (collectively the " Sierra Club" ) bring this appeal in response to the circuit court's ruling in a declaratory judgment action filed by Dominion Cove Point LNG, L.P. (" Dominion" ). The Sierra Club challenges Dominion's assertion that an agreement between the two restricting the use of Cove Point permits the exportation of natural gas. The Circuit Court for Calvert County found that the agreement was unambiguous and permitted Dominion to expand its operations to include exportation. The Sierra Club appealed and presents one question for our consideration:

[216 Md.App. 326] Does the 2005 Agreement between Dominion, Sierra Club and [Maryland Conservation Counsel Inc.] allow Dominion to construct LNG export facilities at the Cove Point site even though export is not included on the list of authorized activities under the Agreement?

For the reasons that follow, we shall affirm the judgment of the circuit court.


Columbia Gas was Dominion's predecessor in ownership of a 1,017 acre parcel of land in Maryland located at, and referred to as, Cove Point. In 1972, Columbia Gas began to construct a liquid natural gas (" LNG" ) import terminal on a portion of the land. Natural gas[1] is liquified in order to transport it because in its gaseous state, it takes up 600 times as much space as LNG. At this time, it was necessary to transport natural gas because it was only available if imported from foreign nations. In 1978, after interested parties expressed concern regarding potential harm to the environment, Columbia Gas, the Sierra Club and the Maryland Conservation

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Counsel Inc. (" MCC" ) entered into an agreement regarding the use of Cove Point. After the 1978 agreement went into effect, Columbia Gas began importing LNG at Cove Point, but suspended operations in 1980. In 1994, Columbia Gas desired to reopen Cove Point to add new " peaking" services. Peaking is a service that allows energy providers to store natural gas for future use by utility companies during peak energy use time periods. Providing peaking services would require Colombia Gas to construct liquification capabilities at the Cove Point facility. The three parties negotiated a new agreement, granting Columbia Gas the ability to liquefy, store and regasify natural gas. In 2002, Dominion purchased Cove Point from Columbia Gas.

[216 Md.App. 327] 2005 Agreement

Between 1994 and 2005, Cove Point was used only to import natural gas and for peaking services. However, in 2005, Dominion sought to expand its Cove Point operations to meet rising domestic natural gas demand. As a result, Dominion, Sierra Club and MCC negotiated a new agreement. It was agreed that the 2005 Agreement would replace in its entirety all previous agreements and understandings regarding use of Cove Point. The agreement provides that Dominion may use the area designated as the LNG Terminal Site solely to perform " LNG Terminal Operations." Within the Terminal Site, there is an area identified as the Fenced Area, which is where the natural gas tanks are located. The 2005 Agreement defines LNG Terminal Operations as:

" LNG Terminal Operations" means and is limited to any use or activity related to (i) the construction, operation or maintenance of facilities and equipment associated with the following activities (a) through (j): (a) marine operations involving the importing of LNG; (b) the liquefaction of natural gas; (c) the storage of LNG in tanks; (d) the regasification of LNG; (e) the receipt by tanker and the receipt or delivery by pipeline of LNG, revaporized LNG or natural gas at or from the LNG Terminal Site; (f) the treatment of LNG or revaporized LNG by nitrogen injection or the separation and removal of constituent parts; (g) the provisioning of LNG tankers with water and miscellaneous supplies, provided that the principal method of provisioning LNG tankers shall be by means of shipments of materials and supplies from locations other than the Cove Point Site to the off-shore pier for storage and transfer to LNG tankers docked at the off-shore pier; (h) the recovery and use on the LNG Terminal Site for other LNG Terminal Operations of the cryogenic properties of LNG; (i) the recovery and use on the LNG Terminal Site of waste heat for other LNG Terminal Operations; (j) the generation or cogeneration of electricity within the limitations prescribed herein; and (ii) the construction, operation or maintenance [216 Md.App. 328] of facilities and equipment directly supporting the foregoing activities (a) through (j), including office buildings, warehouses, maintenance shops, firefighting equipment and utilities.

As discussed more fully, infra, the 2005 Agreement provides for other rules regarding what operations may be performed and in some instances, explicitly prohibits other activities.

Dominion's Proposed Export Project

Since 2005, the domestic natural gas market has changed dramatically. A new procedure known as hydraulic fracturing (" fracking" ) has unlocked vast new supplies of natural gas in the United States. Fracking is a process by which gas companies

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drill into layers of shale rock and extract gas reserves from within the rock.[2]

In response to the new fracking developments, in 2011, Dominion announced plans to expand its Cove Point operations in order to add new export capabilities. Dominion applied to the Federal Energy Regulatory Commission (" FERC" ) to obtain permission to construct and operate the exporting facilities. It also sought approval from the federal Department of Energy to export natural gas to foreign countries.

Unlike the practice followed in prior instances of negotiating agreements prior to seeking approval of expansion, Dominion did not approach Sierra Club until several months after it sought federal approval. Sierra Club filed comments protesting the proposed expansion. Dominion then approached the Sierra Club and MCC, as required by the 2005 Agreement, to seek approval for the project. During discussions, the Sierra Club expressed that it did not intend to approve the proposed expansion.[3] As a result, Dominion revised its plans and [216 Md.App. 329] proposed to construct new facilities outside of the Terminal Operations area that is subject to the 2005 Agreement. The Sierra Club then asserted that the 2005 Agreement does not authorize LNG to be exported from the Terminal Site. Dominion thereafter filed an action for declaratory judgment against Sierra Club and MCC in the circuit court.

Circuit Court Proceedings

In the circuit court, the parties filed cross motions for summary judgment. Dominion sought judgment confirming its right to construct new liquefaction facilities within the Fenced Area and its right to transfer LNG from Cove Point to the offshore pier. The Sierra Club argued that the 2005 Agreement does not authorize Dominion to export LNG from the Cove Point facility because the Agreement " limits Dominion to an exclusive list of enumerated activities at Cove Point, and export of LNG is not authorized by that list."

Following a hearing on the cross motions, the circuit court issued an opinion and order in favor of Dominion. The circuit court reasoned:

In my opinion, subsection (e) of Section 1.01 of the Agreement unambiguously does give Dominion the right to use the Cove Point Facility for the export of LNG. Excluding unnecessary words, subsection (e) of Section 1.1 allows Dominion to carry on activities related to (e) the receipt by tanker and the receipt or delivery by ...

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