The U.S. Court of Appeals for the District of Columbia has handed opponents of the Nexus Gas Transmission system a partial victory in a key decision directing FERC to reconsider its approval for the pipeline that could have implications for infrastructure serving liquified natural gas (LNG) export facilities.
The Federal Energy Regulatory Commission issued a certificate authorizing Nexus in 2017, and after facing staunch opposition, it entered service late last year to move 1.5 Bcf/d of Appalachian shale gas to markets in the Midwest and Canada.
While unsuccessful in their request for rehearing at FERC and before a U.S. district court, Oberlin, a small college city in northern Ohio, and landowners in the state that formed the Coalition to Reroute Nexus, won what ClearView Energy Partners LLC called a “precedential opinion” last week before the DC Circuit [City of Oberlin, Ohio v. Federal Energy Regulatory Commission, No. 18-1248]. Earlier this summer, the court denied a motion filed by Nexus to dismiss the case.
The petitioners argued that the project wasn’t fully subscribed in a way that warranted a FERC certificate. In particular, they claimed that Nexus’ agreements to sell gas to foreign companies in Canada were not in the public interest and its use of eminent domain violated the Takings Clause of the U.S. Constitution because the pipeline did not serve a public use under the Fifth Amendment.
The DC Circuit said the “argument raises legitimate questions, which the Commission has heretofore failed to adequately answer” and remanded the certificate order to FERC so it can reconsider its reasons for approving the project.
Nexus spokesman Adam Parker said the pipeline’s sponsors, Enbridge Inc. and DTE Energy Co., are reviewing the decision and “will be following closely as FERC determines next steps.” The opinion, he added, does not affect the pipeline’s operations.
Nexus secured precedent agreements with eight different entities for 825,000 Dth/d, or just 59% of the pipeline’s capacity. Two of the agreements were signed with Canadian companies serving customers in Canada, according to court documents.
Without the foreign agreements, the DC Circuit noted that only 42% of the project would have been subscribed. “...Because the Commission never considered whether the public benefits of the Nexus pipeline would outweigh its adverse impacts if it were only subscribed for 625,000 Dth/d, we may affirm its finding of public convenience and necessity only if the Commission’s inclusion of the export precedent agreements in its analysis was proper,” the court said.
But the panel of judges said the Commission failed to explain during oral arguments and in other proceedings why it is lawful to credit demand for export capacity in issuing a certificate. In order to receive a certificate approval under the Natural Gas Act (NGA), a developer must show that its project is in the public interest and meets unserved market demand.
ClearView said there are most likely two ways FERC can address the opinion. Commissioners need to explain that the export volumes are just as important as domestic consumption or it could reassess its needs analysis to show that 625,000 Dth/d of demand outweighs the pipeline’s adverse impacts.
“If FERC bolsters its arguments that U.S. obligations to free-trade partners under NGA are ‘substantially equivalent’ with domestic need -- particularly in the case of Canada and Mexico -- then ‘foreign shipper’ commitments would help support a project’s public convenience and necessity argument,” ClearView said.
Landowners and environmental groups have pushed similar arguments in other cases, and while different courts have weighed in on the issue, ClearView said the DC Circuit’s opinion carries with it more weight. Pipelines that serve LNG export projects could face more risk depending on how FERC addresses the issue, but ClearView said that “risk does not seem uniform.”
The case doesn’t appear relevant to LNG projects that already have certificates and face no FERC rehearing or judicial review. LNG facilities interconnected to interstate or local distribution companies also seem out of reach for now, ClearView said.
“Whether an NGA pipeline faces risk appears to pivot heavily on the potential for landowner opposition and the need to exercise eminent domain and looks relevant for projects that are in development, have applications pending, and/or have not had the rehearing/judicial review window close,” ClearView said.
After FERC issued its certificate for the project, Nexus filed condemnation proceedings against the petitioners in the U.S. District Court for the Northern District of Ohio in 2017. The district court found that Nexus had the right to exercise eminent domain and FERC later rejected the group’s rehearing request, but it did not explain how it factored export precedent agreements into its analysis of the project.