Late last month, the Federal Courts issued two major rulings involving certificates of public convenience and necessity for natural gas pipelines issued by the Federal Energy Regulatory Commission.  While a decision by the Supreme Court was a victory for pipeline companies, a decision by the DC Circuit in another FERC case could have important impacts on the standards that pipeline companies must meet in order to demonstrate need for their proposed pipeline project.

On June 22, 2021, the US Court of Appeals for the DC Circuit issued an order in Environmental Defense Fund v. Federal Energy Regulatory Commission, vacating FERC’s 2018 order issuing a certificate of public convenience and necessity under section 7(c) of the Natural Gas Act to Spire STL Pipeline LLC (“Spire STL”).[1]  In 2017, Spire STL filed an application with FERC for the certificate for a new natural gas pipeline to be constructed in the St. Louis, Missouri area.  Under FERC’s “Certificate Policy Statement,”[2] Spire STL demonstrated that there was market need for the proposed project, citing, among other things, the precedent agreement with its affiliate Spire Missouri Inc., the ability to access new sources of gas supply, increased reliability, and decreased reliance on the use of propane for peak shaving during periods of high demand.  Although Environmental Defense Fund and several other parties challenged the application, FERC determined that Spire STL had satisfied the criteria in the Certificate Policy Statement.  Based on FERC’s issuance of the certificate, Spire STL completed construction on the pipeline and commenced operations.

On review of FERC’s order, the DC Circuit determined that FERC had acted in an arbitrary and capricious manner in granting the certificate to Spire STL.  The court focused on the Commission’s reliance on the precedent agreement with Spire Missouri and found that the certificate order failed to properly address the arguments raised by the protesting parties that the contract with Spire STL’s affiliate did not satisfy the requirement in the Certificate Policy Statement to demonstrate need for the pipeline. The remedy prescribed by the court of vacatur has the effect of removing the regulatory authorization to construct and operate the Spire STL pipeline.  Although the court acknowledged that the effect of its order would disrupt pipeline operations, the court justified the approach by arguing that it did not wish to encourage agencies to allow construction without first having conducted a comprehensive review.

The decision remands the case back to FERC for further proceedings.  In a public statement, FERC Chairman Glick emphasized the need for review of the Commission’s Certificate Policy Statement, which is currently pending in a notice of inquiry in Docket No. PL18-1.[3]

On June 29, 2021, the Supreme Court issued an order in PennEast Pipeline Co., LLC v. New Jersey, in which the Court determined that the power of eminent domain that attaches to the holder of a certificate of public convenience and necessity under section 7(c) of the Natural Gas Act issued by FERC extends to all necessary rights-of-way, whether they are held by private parties or states.[4]  In 2018, FERC granted a certificate to PennEast Pipeline Co., LLC (“PennEast”) to construct a 116-mile pipeline from Pennsylvania to New Jersey.  PennEast subsequently filed actions in Federal District Court in New Jersey to exercise the power of eminent domain under Section 717(h) of the Natural Gas Act to obtain the rights-of-way necessary to construct the project.  Included in those actions were lands owned by the state of New Jersey and lands in which New Jersey held conservation easements.  New Jersey challenged on sovereign immunity grounds. The District Court sided with PennEast, finding that New Jersey was not immune from the exercise of eminent domain under Section 717(h) of the Natural Gas Act.[5]  On appeal, the Third Circuit came to a different conclusion, finding that the exercise of eminent domain in Section 717(h) did not clearly delegate authority to condemn property of a nonconsenting State.[6]

The Supreme Court determined that the Federal Government’s power of eminent domain may be exercised against both private property and state property, and that this power extends to delegates of the Federal Government without limitation.  By issuing the certificate to PennEast, FERC determined that there was a public need for the pipeline.  The Supreme Court determined that the purpose of Section 717(h) of the Natural Gas Act was to remove any barriers to pipeline construction that could be caused by requiring state lands to be subject to state-specific eminent domain procedures in state court.

The Supreme Court’s decision in PennEast clears the way for PennEast to complete the eminent domain actions, however it should be noted that an appeal of the underlying FERC certificate order has been held in abeyance before the DC Circuit pending the Supreme Court’s decision.  This places PennEast back before the DC Circuit for decision of the appeal of its certificate order in the wake of that court’s recent order in Environmental Defense Fund v. FERC.

Pipeline developers should pay close attention to how FERC handles the remand of the Spire STL Pipeline proceeding.  Given the interest among members of the Commission in revisiting the Certificate Policy Statement, the Commission could use this proceeding as a springboard to push for changes in how FERC evaluates natural gas pipeline proposals.

[1] 2021 WL 2546672.

[2]  Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227 (1999), clarified, 90 FERC ¶ 61,128 (2000), further clarified, 92 FERC ¶ 61,094 (2000).

[3] https://www.ferc.gov/news-events/news/ferc-reviewing-dc-circuit-decision-vacate-spire-pipeline-certificate

[4] 2021 WL 2653262.

[5] In re PennEast Pipeline Co., 2018 WL 6584893, *12 (D. N.J., Dec. 14, 2018).

[6] In re PennEast Pipeline Co., 938 F.3d 96, 113 (2019).