A court case challenging the Federal Energy Regulatory Commission’s grant of eminent domain to a natural gas pipeline, originally brought over the long-running, contentious issue of how to treat greenhouse gas emissions, has turned into a case of whether the commission can approve condemnation of private property for pipelines that serve foreign, as well as domestic, customers.
Should the court side with the challengers to the pipeline’s condemnation authority, it could create considerable uncertainty over the agency’s approval of pipelines aimed at supplying liquefied natural gas export terminals, several of which FERC has recently granted.
The case involves the NEXUS Pipeline, a 50-50 joint venture between Canada’s Enbridge and Detroit’s DTE Energy to move gas from the Utica shale formation into Detroit, serving Ohio and Michigan gas markets, and, ultimately, into Canada. FERC approved granting the pipeline condemnation authority in July, with Commissioner Richard Glick in dissent.
Glick’s dissent largely focused on two issues – whether the pipeline had demonstrated that the pipeline is needed. He pointed out that only 49% of the pipeline capacity had attracted firm buyers, and the remainder relied on unspecified new markets and Canadian gas take. He said that he could “not agree the commission can justify a larger-than-necessary pipeline solely based on the potential for future growth implied by an applicant’s willingness to invest in the additional capacity and their commitment to market the unsubscribed capacity.”
Glick also raised the issue that he has been consistently raising since he came onto the commission in 2017: the FERC decision not to consider greenhouse gas emissions, either at the source or the end point, of pipelines. He wrote in dissent, “The courts have found that it is arbitrary and capricious to monetize project benefits while ignoring the harm from the project’s contribution to climate change and an available tool to quantify this harm – the social cost of carbon.”
The city of Oberlin, Ohio, and a local Ohio group, the Coalition to Reroute Nexus, challenged the FERC decision in the U.S. Court of Appeals for the D.C. Circuit. Both the city and the locals faced condemnation of their property. Their objections echoed Glick’s dissent, particularly on the issue of the need for the project, given that less than half of its capacity had customers.
But Oberlin raised a new, and potentially vexing issue: whether the pipeline’s export connections nullified the legality of its eminent domain authority. D.C. energy lawyer Carolyn Elefant laid out the argument in an email to The Quad Report. She said that NEXUS going forward with the pipeline was surprising, given that it didn’t have firm customers to back up its finances. “In that context,” she said, “NEXUS didn’t make sense until we realized that it was really being built for export.”
Elefant noted that Section 7 of the Natural Gas Act provides the power of eminent domain for domestic pipelines in interstate commerce. But Section 3 of the act governs pipelines that sit at international borders for import or export. Historically, these have not been a major factor in FERC pipeline cases. Section 3 pipelines are not entitled to eminent domain authority, as their gas does not benefit U.S. consumers.
Here’s the rub. The Vector Pipeline, Elefant noted – the last piece of the NEXUS project – won FERC approval in 2006 under Section 3 authority. “We argued (before the three-judge D.C. Appeals Court panel on Monday, May 6) that NEXUS was essentially a cross border/export pipeline for the following reason. First, it was built with the intent to provide a seamless delivery path for shale [gas] from Ohio to Dawn Hub [in southwestern Ontario province] through a combination of new pipe and leased capacity on Vector (which actually crosses the border). Second, of the 885,000 decatherms/day subscribed (the pipeline’s total capacity is 1.5 million dt/day), it is undisputed that 260,000 dt/day was reserved by two Canadian shippers who would transport gas to Canada.” Elefant’s clients argued that FERC should have “issued a Section 3 certificate for the project….”
While the issue of FERC’s reluctance to analyze greenhouse gas emission from pipelines has gotten the most attention lately, the Section 3/Section 7 issue drew the most attention from the three Appeals Court judges – Judith W. Rogers, Sri Srinavasan, and David S. Tatel – at Monday’s oral argument. FERC’s essential rebuttal was that once a pipeline is in interstate commerce, Section 3 does not come into play.
Elefant told The Quad Report, “As you can see, the case will have longer term implications for pipelines connecting to LNG export terminals. Back when LNG was built for import, FERC would authorize the LNG terminal under Section 3 and the pipeline that would take gas from the terminal into the U.S. under Section 7. That makes sense for import because once the gas is in the U.S., it would be transported and distributed in interstate commerce. But when the gas is going in the other direction – from the U.S. to an LNG terminal for export, it’s a different scenario – and that gas will be exported.”
— Kennedy Maize