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National Fuel weighs appeal after New York state court denies eminent domain for Northern Access natural gas pipeline

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Platts Market Data – Natural Gas

National Fuel weighs appeal after New York state court denies eminent domain for Northern Access natural gas pipeline

Washington — New troubles arose for National Fuel Gas Supply's Northern Access 2016 natural gas pipeline project after a New York state appeals court denied eminent domain authority, citing the state's denial of a water quality certification.

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The 99-mile, 490 MMcf/d producer-backed pipeline, proposed by National Fuel and Empire Pipeline, could help boost production in western Pennsylvania, and would likely drive down net Canadian imports because it will boost Northeast exports to eastern Canada by up to 350 MMcf/d, according to S&P Global Platts Analytics.

The eminent domain case touched on legal tensions between state authorities governing eminent domain procedures and federal powers to authorize interstate natural gas pipeline projects.

The project was freed from one major snag in August when the US Federal Energy Regulatory Commission found New York's water quality certification to be waived because the state took more than a year to act.

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But notwithstanding FERC's action, the state appeals court November 9 denied the use of eminent domain on a property in New York on the ground that the pipeline could not be built because of New York's April 2017 denial of the water quality certificate.

When the state denied the permit, the sponsor lost the right to build the project, therefore losing the right to seek eminent domain, the court said. That is because the certificate order was conditioned upon acquisition of a state water quality permit.

APPEAL OPTIONS

Karen Merkel, a spokeswoman for National Fuel, said "it is too early to determine" whether the ruling will affect the 2022 in-service date for the project envisioned by company officials.

National Fuel is weighing appellate options and is entitled to appeal the case to the New York State Court of Appeals, the highest court in the state, because two judges dissented in the opinion, she said in an email.

The property at issue is one of five along the route for which the company has been in litigation.

"National Fuel remains committed to this project and is pleased that we have secured agreements with more than 500 property owners along the 97-mile proposed pipeline route," she said.

In a footnote in the case, the majority explained that it declined to take judicial notice of the August FERC waiver ruling, which came after oral argument, because the FERC order is not final and is subject to administrative rehearing and judicial review. New York and Sierra Cub have sought rehearing.

Two dissenting judges argued that the state's denial of the water quality permit is no longer an impediment. The August FERC order "is binding unless and until it is vacated or overturned on appeal," they wrote.

The majority opinion, penned by Justice Patrick NeMoyer, said the developer "is trying to expropriate respondent's land in furtherance of a pipeline project, that, as things currently stand, cannot legally be built." It added: "Such an effort turns the entire concept of eminent domain on its head."

RAMIFICATIONS

Carolyn Elefant, a Washington attorney who has represented landowners, said that depending on whether other courts pick up on the reasoning in this case, the ruling could have ramifications on the validity of pipeline certificates when a water quality certification is denied.

"If you bring an eminent domain proceeding and one of the federal permits is denied, a company may not be able to go forward with eminent domain."

The reach of the ruling may be limited by the fact that the case was brought under state eminent domain law, however.

"The impact is quite narrow," said William Scherman, a partner at Gibson, Dunn & Crutcher. "It turns on the peculiar circumstance of the case and I don't think a lot of courts would agree with the reasoning and the distinctions the court drew about the FERC order. The dissent got it right."

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

-- Eric Brooks, ebrooks@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com