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Power & Pipes

FERC, CFTC, and State Energy Law Developments

The US Supreme Court granted certification on February 3 to review the US Court of Appeals for the Third Circuit’s decision in In re PennEast Pipeline Co. in order to resolve an important question: Does the Natural Gas Act (NGA) delegate authority to exercise the federal government’s eminent domain power to condemn land in which a state claims an interest when FERC grants a certificate of public convenience and necessity for an interstate pipeline project?

Natural gas industry players hope that answer is “yes,” and the Supreme Court will reverse the Third Circuit’s decision that the appellate court itself acknowledged “may disrupt how the natural gas industry, which has used the NGA to construct interstate pipelines over State-owned land for the past eighty years, operates.”

PennEast seeks to operate an interstate natural gas pipeline to transport gas from Pennsylvania to New Jersey. In accordance with the Natural Gas Act, PennEast applied for approval from FERC to construct the new pipeline, and FERC granted the application, issuing a certificate of public convenience and necessity. Under the Natural Gas Act, such certificate carries with it the power to exercise the right to eminent domain so that the pipeline company may acquire the necessary rights-of-way to construct, operate, and maintain the pipeline. Holders of such certificate have exercised such power over private and state-owned lands because the Natural Gas Act, unlike other statutes, does not carve out special rules for state-owned property.

When New Jersey refused to grant PennEast the necessary rights-of-way over its state-owned property, PennEast brought a condemnation in federal court. New Jersey argued that it had Eleventh Amendment immunity from a certificate holder’s delegated eminent domain powers. The Third Circuit agreed, reasoning that in order to delegate the federal power of eminent domain over state-owned lands to a certificate holder like PennEast, Congress must also delegate to the certificate holder the federal power to sue a state. Because the Third Circuit concluded the Natural Gas Act did not delegate that federal power, a certificate holder had no power to exercise the right to eminent domain against New Jersey.

Preventing certificate holders like PennEast from acquiring rights-of-way over state-owned land has serious and extensive implications for interstate pipeline construction, which often cover thousands of miles. FERC itself issued a Declaratory Order explaining how the Third Circuit’s decision will upset the nation’s natural gas transportation system and undermine public access to reliable and affordable supplies of natural gas. See 170 FERC ¶ 61,064. Furthermore, the Trump administration submitted a brief to the Supreme Court supporting PennEast’s petition for writ of certiorari, agreeing with PennEast that the Third Circuit’s decision was incorrect. But the Acting Solicitor General’s brief also raised a jurisdictional question by pointing out that any challenge to PennEast’s authority under the certificate must be brought through a challenge to the certificate itself, not a collateral attack like the one New Jersey launched in the Third Circuit. In granting PennEast’s petition, the Supreme Court directed the parties to brief the jurisdictional question in addition to the merits question. Thus, the jurisdictional obstacle provides another ground by which the Third Circuit decision may fall.

An argument date has yet to be set. The case is PennEast Pipeline Co. v. New Jersey, Supreme Court Docket No. 19-1039. The Third Circuit decision is In re PennEast Pipeline Co., Nos. 19-1191 thru 19-1232 (3d Cir. Sept. 10, 2019).