A great result for colleague Carolyn Elefant, who represents property owners in a case and issue we've been following.
This is one of those Natural Gas Act pipeline cases. Not on the issue of immediate-possession-by-injunction (we'll have the latest development in that chapter very soon), but on the administrative law side, involving FERC's approval of a certificate of public convenience. That, as you know, is the trigger to a private pipeline exercising the NGA's delegated power of eminent domain, because it effectively settles the question of whether the takings are for a public use or purpose. Also, as you know, an agency's decision is, generally speaking, subject to a highly deferential judicial standard of review under the APA: a certificate may only be set aside "if it is arbitrary and capricious or otherwise contrary to law." Slip op. at 9.
Thus, the property owners had a daunting task when they argued that FERC didn't do it right, and the certificate should be set aside. They made several arguments, but the one that stuck out the most to us was the question of exactly what is the "public" that supports a determination that a pipeline is for a public use or purpose? Here, FERC concluded that the agreements the pipeline company already had made to distribute the gas to be transported (a total of 805k dekatherms per day) was sufficient to support a determination of public use or purpose. But, the owners argued, a large percentage of that (42%) would be going to -- the horror! -- Canada, and FERC never reached any conclusion whether the remaining gas for distribution in the U.S. would support a finding of public use.
This is an argument that has been made in several cases in multiple jurisdictions. Some courts, like Kentucky's, define the "public" as the public which the jurisdiction serves. In the Bluegrass Pipeline case, for example, the court of appeals held that a natural gas pipeline which went through Kentucky, but did not have any offramps for the natural gas in Kentucky -- was not "in public service" as required by that state's eminent domain statutes. A Pennsylvania court adopted a similar rationale (even though it held a private pipeline could exercise eminent domain power because it planned gas offramps in Pennsylvania).
The D.C. Circuit agreed with the property owners that the issue was more "Our House" than "We Are the World."
The panel first concluded that an owner whose property is subject to a pipeline's acquisition has Article III standing to administratively challenge FERC's issuance of a certificate. "The law of our circuit is clear that a landowner is injured in fact when she is put to the choice of having to either reach an agreement with a pipeline seeking to access her property or have her property condemned." Slip op. at 8 (emphasis original). The court rejected the pipeline's argument that the owners lost their standing and were no longer injured because "since oral argument, Petitioners and Nexus executed easement agreements that settled the issue of compensation for Nexus's takings," which resulted in the dismissal of the eminent domain actions in district court." They still had been subject to making that choice of sell "voluntarily" or have it taken.
On the merits, the court concluded that the owners' argument about what public supports the question of public use "raises legitimate questions, which the Commission has heretofore failed to adequately answer." Slip op. at 12. FERC "never considered whether the public benefits of the Nexus pipeline would outweigh its adverse impacts if it were only subscribed for 625,000 dth/day (a substantial decrease from the analyzed 805,000 dth/day), we may affirm its finding of public convenience and necessity only if the Commission's inclusion of the export precedent agreements in its analysis was proper." Id.
The court didn't reach a conclusion on whether the inclusion by FERC of the Canada-bound gas was proper, because "the Commission never explained why it is lawful to credit demand for export capacity in issuing a Section 7 certificate to an interstate pipeline." Id. All FERC did in response to the owners' objections was to do what agencies in these kind of cases usually do: repeat what it found (that 805k dth/day was enough because hey, some part of it would be going to the U.S.), and rely on the deferential standard of review.
The D.C. Circuit did not accept that argument, concluding that under the NGA, FERC may issue a certificate for the transport of gas in interstate commerce, and "we have explicitly refused to 'interpret 'interstate commerce'' within the context of the Act 'so as to include foreign commerce.'" Slip op. at 13 (citations omitted).
The panel similarly rejected FERC's argument that the certificate also took care of the Public Use Clause challenge:
Furthermore, in that single case, the Commission relied on the inadequate explanation that such a circumstance does not present a Takings Clause problem because: once the Commission determines that a pipeline is required by the public convenience and necessity, Section 7 authorizes the certificate holder to exercise the right of eminent domain, and “Congress did not suggest that there was a further test . . . such that certain certificated pipelines furthered a public use . . . while others did not.” Id. ¶¶ 31-32. This reasoning begs the unanswered question of whether – given the fact that Section 7 authorizes the use of eminent domain – it is lawful for the Commission to credit precedent agreements for export toward a finding that a pipeline is required by the public convenience and necessity.When pressed on this issue at oral argument, the Commission again did not explain why it is lawful to credit precedent agreements for export in issuing a Section 7 certificate for the construction and operation of an interstate pipeline. See Oral Arg. 16:45-28:10. Rather, the Commission repeated that, in approving Nexus’s application, it was “looking at the benefits to the domestic markets.” Oral Arg. 27:34-39. As we have explained, this statement has no explanatory value with respect to the question of why it is lawful for the Commission, as it did here, to predicate a Section 7 finding of need for an interstate pipeline on a pipeline’s precedent agreements for export.
Slip op. at 13-14 (footnotes omitted).
The court remanded the case to FERC "for further explanation of why -- under the [NGA], the Takings clause, and the precedent of this Court and the Supreme Court -- it is lawful to credit precedent agreements with foreign shippers serving foreign customers toward a finding that an interstate pipeline is required by the public convenience and necessity under Section 7 of the Act." Slip op.at 14-15. Judge Rogers concurred, hinting to the pipeline and FERC that on remand, they should consider arguing that the gas that is slated to go to Canada really might not be really going to Canada because the agreements with the Canadian distributors allowed for U.S. use.
This is a significant win for property owners, because it requires FERC to determine whether the U.S. public would benefit from a pipeline. But before you get too giddy with the result, check out page 22 of the slip opinion where the court cautioned, "we remand without vacatur, because we find it plausible that the Commission will be able to supply the explanations required, and vacatur of the Commission's orders would be quite disruptive, as the Nexus pipeline is currently operational." Slip op. at 22. Yeah, it's already been built.
In case you were wondering why Judge Millett of the same court (but not on this panel) recently concluded that this is a process that keeps property owners "in seemingly endless administrative limbo while energy companies plow ahead seizing land and constructing the very pipeline that the procedurally handcuffed homeowners seek to stop."
City of Oberlin v. Fed. Energy Reg. Comm'n, No. 18-1248 (D.C. Cir. Sep. 6, 2019)
