The U.S. Court of Appeals for the D.C. Circuit today overruled the Federal Energy Regulatory Commission’s grant of eminent domain for a natural gas pipeline. The unanimous ruling by a three-judge panel remanded FERC’s 2017 approval for an interstate pipeline proposed by Nexus Gas Transmission LLC for a 257-mile pipeline moving Appalachian shale gas across Ohio and Michigan to markets in Ohio, Michigan, and Ontario, Canada.
The Ohio city of Oberlin and local landowners objected to granting the ability of the pipeline to take property in the city. FERC rejected their complaints and then nixed a request for rehearing. The city and landowners appealed to the circuit court, which reviews FERC actions. Writing for the court, Judge Robert Wilkins wrote, “Petitioners raise many arguments, the vast majority of which we reject. We agree with them, however, that the commission failed to adequately justify its determination that it is lawful to credit Nexus’s contract with foreign shippers serving foreign customers as evidence for market demand for the interstate pipeline.”
Under federal law and agency regulations, FERC must determine that a substantial market for the gas from an interstate pipeline exists before it grants the pipeline the ability to take private property through eminent domain procedures. The court remanded the decision to refuse rehearing to FERC, without vacating FERC’s action.
The court was largely scornful of FERC’s arguments that its policy of crediting foreign sales by foreign entities justifies granting eminent domain authority under Section 7 of the Natural Gas Act because the agency offered no convincing reasons other than past practice and agency policy. The opinion said FERC’s response that its certificate violates the “takings clause” of the U.S. Constitution “merely stated that it has previously addressed this issue and offered citation authority.” The court was not convinced that this was not arbitrary and capricious.
In remanding the issue back to FERC, the court said it appears that FERC could come up with a legal justification for its actions, and that killing the FERC approval outright “would be quite disruptive, as the Nexus pipeline is currently operational.”
Joining Wilkins in the decision were Judges Judith Rogers and Sri Srinivasan. Rogers issued a concurrence, saying she supports the action “to allow the commission the opportunity to provide an explanation of its authority to rely in Section 7 certification proceedings on precedent agreements with foreign shippers serving foreign as well as domestic customers.”
Energy law professor James Coleman at the SMU Law School commented on twitter that this is a “ huge decision: D.C. Circuit says that FERC must explain why gas exports to foreigners can justify pipeline approval and eminent domain. This issue gets bigger every day as historic oil and gas boom makes U.S. a premier energy exporter.”
— Kennedy Maize