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PennEast seeks US FERC's help with eminent domain snag in 3rd Circuit

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PennEast seeks US FERC's help with eminent domain snag in 3rd Circuit

Highlights

Seeks FERC order finding Congress delegated powers

Suggests unchecked ruling would stymie pipeline development

Washington — PennEast Pipeline is turning to the US Federal Energy Regulatory Commission to help overcome an unfavorable US Court of Appeals for the 3rd Circuit ruling that threatens to hold up the project and could unsettle the process for condemning lands for natural gas pipelines.

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At issue is a potentially far-reaching September 3rd Circuit ruling that found state sovereign immunity prevented PennEast from pulling states into federal court for condemnation proceedings.

The case centered around the 116-mile, 1.1 Bcf/d PennEast Pipeline's efforts to condemn about 40 properties owned at least in part by the state of New Jersey and some of which were preserved for conservation, recreation or agriculture.

The proposed pipeline would connect Marcellus Shale dry gas production to markets in Pennsylvania, New Jersey and New York. It potentially would reduce price spikes during high demand periods and support additional production by bolstering supplies into the often constrained New York City market and offer a new outlet for gas leaving northeastern Pennsylvania.

PennEast is a joint venture of Enbridge, Southern Gas Company, South Jersey Industries, New Jersey Resources and UGI.

PennEast Pipeline on Friday asked FERC to provide as early as possible its "authoritative interpretation" of the Natural Gas Act's eminent domain authority. Such action "will be of substantial assistance" as courts consider whether NGA Section 7 authorizes pipeline developers holding a FERC certificate to bring condemnation action involving a property in which the state claims an interest, it said. It sought expedited action in time for further 3rd Circuit proceedings in the case, in which the pipeline company has asked for more time to appeal (PennEast Pipeline v. A permanent easement for 1.74 acres, et al.,19-1191).

'ROADMAP' FOR OBSTRUCTION

The 3rd Circuit ruling found that nothing in the NGA suggested Congress intended to delegate to private companies the federal government's exemption from state sovereign immunity. It said sovereign immunity goes to the core of the national government's constitutional design and that accepting PennEast's delegation theory would dramatically undermine careful limits the Supreme Court has placed on abrogation.

PennEast and an industry coalition led by the Interstate Natural Gas Association of America have expressed concern that upholding the state's invocation of sovereign immunity would cause the industry and interstate gas pipelines to grind to a halt. The 3rd Circuit ruling, combined with a federal district court ruling in Maryland, and "inevitable attempts by landowners and other states to extend these decisions to other jurisdictions will substantially impede the ability of natural gas companies to develop natural gas infrastructure," PennEast wrote. The ruling presents a roadmap for private landowners to seek to transfer strategically a partial interest or conservation easement to a state, in an effort to block a pipeline once an early route is unveiled, PennEast contended.

CONSTITUTIONAL QUESTIONS

To help in a likely appeal, PennEast asked FERC to find that NGA condemnation authority applies to a property in which a state holds an interest. It also asked FERC to find that Congress delegated the federal government's eminent domain authority to pipeline certificate holders, and, importantly, to find that Congress delegated the federal government's exemptions from claims of state sovereign immunity.

PennEast offered FERC its own analysis of why no constitutional concerns exist. It argued that Congress was well aware of the constitutional framework, and that it strains credulity to argue that Congress would enact a statute concerning siting of interstate gas pipelines without extending the power of eminent domain to state-owned lands.

"All in all, I think this shows how consequential the 3rd Circuit decision is, but also how difficult it may be to overturn it," said Gary Kruse of LawIQ. While PennEast is soliciting a FERC interpretation of the NGA to which the courts could defer in this case, he was unsure how much weight a FERC interpretation would have, given recent legal attacks on the deference that courts have given to federal agency interpretations under the so-called Chevron doctrine.

Some observers have suggested the 3rd Circuit ruling would at the least drive developers to avoid routes crossing state lands, and that it would create opportunities for obstruction in states opposing pipeline development. Critics of the current process see the ruling as promising to tip the balance back toward states' rights.

-- Maya Weber, maya.weber@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com