US court blocks new Long Island natgas pipeline

NEW YORK, May 2 (Reuters) - A proposed natural gas pipeline suffered another setback on Friday when a U.S. appeals court refused to review Connecticut's decision to deny its owners a much needed water-quality permit so they could begin construction.

The 2nd U.S. Circuit Court of Appeals in Manhattan, in a 2-to-1 decision, declined to review the Connecticut Department of Environmental Protection decision to deny Islander East Pipeline Company, LLC the permit, which is needed for federal approval to begin construction.

Islander East, a joint-venture between Spectra Energy Corp (SE.N: Quote, Profile, Research) and National Grid (NG.L: Quote, Profile, Research), has been trying to build the 24-inch (61 cm) pipeline, which would run across Long Island Sound from Connecticut to New York's Long Island region, since 2001.

"Obviously, we're disappointed," said Toni Beck, a spokeswoman for Spectra. "We really do believe this project holds benefits for the region and the region really needs natural gas."

It was the second time the judges heard the case. In 2005, they vacated the Connecticut agency's denial of a water-quality permit, saying then that the state agency's decision was "arbitrary and capricious" and ordered it to hold a further review.

But this time, the majority found that "Because the CTDEP supports its second denial with reasoned explanations tied to record evidence, this court can no longer dismiss its conclusions as unlawful..."

The proposed pipeline would be about 50 miles (80 km) long, with about a 22 miles crossing under Long Island Sound which separates Connecticut from New York.

In the CTDEP's 82-page decision, the state agency identified "a variety of commercially valuable shellfish found in the area, including eastern oysters, hard and soft clams, blue mussels and channel whelk" that would be be affected by the pipeline's construction, the court said.

Asked if the companies planned to appeal the order, Beck said, "At this early stage, it's still too soon to say. We are reviewing the decision." (Reporting by Leslie Gevirtz; ; Editing by Marguerita Choy)