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PennEast Pipeline, stung by 3rd Circuit decision, reviews next steps

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PennEast Pipeline, stung by 3rd Circuit decision, reviews next steps

A federal court decision that state lands cannot be seized by pipeline developers could be a problem for the 1.1-Bcf/d PennEast Pipeline Co. LLC natural gas transportation project, energy industry analysts said.

"Is the PennEast pipeline project dead?" analysts with the Williams Capital Group LP asked in a Sept. 16 note on PennEast sponsor South Jersey Industries Inc. "We do not necessarily agree that the pipeline is dead yet, but the project certainly did take a potentially ominous turn last week."

The analysts added that South Jersey Industries' "growth story is certainly not predicated on PennEast."

On Sept. 10, the U.S. Appeals Court for the 3rd Circuit found that PennEast, even with the eminent domain power that goes with a Natural Gas Act certificate from the Federal Energy Regulatory Commission, could not bring New Jersey into federal court to condemn state lands because states have sovereign immunity under the 11th Amendment of the U.S. Constitution. Pipeline developers use eminent domain to take pieces of property for pipeline right of way when the developer and the landowner cannot come to an agreement on a sale.

Pipeline industry observers thought the 3rd Circuit decision could make things tough on pipeline companies, forcing them to take their projects around state lands in states such as New Jersey and New York that generally do not support new pipelines. Representatives of landowners and environmental groups welcomed the decision. Even the 3rd Circuit recognized its decision could disrupt the status quo in pipeline development under the Natural Gas Act that has existed for about 80 years.

FERC did not comment on the court decision or whether it would take part in any appeal, but the Williams analysts thought the commission might. "Certainly, the appeals court decision will get FERC's attention and legal support," they said.

Of course, the court decision was a setback not just for the FERC-overseen permitting process for gas projects and the pipeline industry but also for the PennEast project. The developer said it would keep going.

"PennEast will review in detail the Third Circuit Court's opinion and determine PennEast's next steps," project spokesperson Patricia Kornick wrote in a Sept. 16 email. "PennEast remains committed to moving forward with the PennEast Pipeline Project to provide New Jersey and Pennsylvania residents and businesses increased access to clean, affordable natural gas."

Kornick did not say whether the next steps might include an appeal or a reroute of the pipeline. Kornick said the estimated project cost remained about $1 billion.

The 36-inch-diameter PennEast pipeline, backed by affiliates of South Jersey Industries, Enbridge Inc., Southern Co., New Jersey Resources Corp. and UGI Corp., would run about 120 miles from Luzerne County, Pa., to Mercer County, N.J. The project would include a compressor station. FERC issued a Natural Gas Act certificate for the project in January 2018. (FERC docket CP15-558)

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