Court upholds FERC OK of Nexus pipeline, inclusion of Canadian customers

The Federal Energy Regulatory Commission justified its approval of the Nexus Gas Transmission project, which carries gas for domestic and Canadian customers, a federal appeals court ruled Friday, rejecting arguments from the City of Oberlin, Ohio, that FERC improperly considered international customers when it determined in 2017 that the project was needed and deserved approval.

FERC's justification after the case was remanded to it for further explanation "is rational and comports with the Natural Gas Act," said the US Court of Appeals for the District of Columbia Circuit in a ruling July 8.

Rejecting the city's two main arguments against the pipeline's approval, the court concluded that FERC could use precedent agreements with international customers in its analysis of whether the pipeline was needed, and that the limited amount of capacity subscribed, 59%, did not foreclose approval of the pipeline.

Nexus, which began operating in 2018, carries gas from the Utica shale in eastern Ohio into Michigan and connections with other pipelines that serve the gas storage hub in Dawn, Ontario. The court decision follows years of fighting over use of eminent domain to build the pipeline supported by precedent agreements with domestic and Canadian customers. The City of Oberlin was the lone holdout that had not reached an agreement on land access with Nexus owners DT Midstream and Enbridge.

Oberlin argued that the precedent agreements with Canadian customers did not merit consideration under Section 7 of the Natural Gas Act since gas exports are considered under Section 3, and that without them the contracted capacity amounted to 42% of Nexus' capacity, which is not sufficient for approval and use of eminent domain authority that comes with FERC authorization.

The city lost on both points in the July 8 decision.

"Nothing in Section 7 prohibits considering export precedent agreements in the public convenience and necessity analysis," the three-judge panel concluded in the opinion written by Judge Neomi Rao. "FERC considered the export precedent agreements as one of the many factors in determining the public convenience and necessity, and thus did not conflate Sections 3 and 7" of the NGA, the court said.

Window for further challenges

The opinion included a footnote that says "We need not, and do not, decide whether it is within FERC's Section 7 authority to grant a certificate for a pipeline that crosses state lines but exclusively transports gas ultimately bound for export."

That likely will come up in other cases where groups have challenged FERC approval of interstate pipelines solely to feed liquefied natural gas export facilities, said Carolyn Elefant, an attorney representing the City of Oberlin, in a brief interview. The clarification in the footnote is a big deal and opens the door for groups to raise legal arguments on pipelines service export facilities, she said.

The court made a distinction with Nexus because gas for domestic shippers and Canadian shippers is comingled within the pipeline, and found it undisputable that Nexus is transporting gas in interstate commerce. "We agree with FERC's decision to treat the Nexus Project as a Section 7 pipeline, as opposed to a Section 3 export facility, even though some of the gas transported in it will ultimately be exported," the court said.

The court also agreed with FERC's explanation that the capacity subscription level of Nexus merited approval at either 59% capacity, when all precedent agreements are considered, or 42% capacity if Canadian contracts are excluded. The commission asserted that the benefits of the project supported a pipeline that size, and that Nexus was able to gain access to 93% of the land involved without use of eminent domain. FERC also found that Nexus was needed to alleviate a bottleneck in the capacity to transport gas to markets outside of the Appalachian Basin and the court agreed with the reasoning.

"We find FERC's independent and alternative reasons for approving the pipeline without considering the export precedent agreements to be reasonable. There is no floor on the subscription rate needed for FERC to find a pipeline is or will be in the public convenience and necessity," the court said.

Senior Circuit Judge David Sentelle concurred on part of the decision dealing with precedent agreements for exports but did not write separately on that.