FERC Interprets NGA To Allow Condemnation Of State-Owned Property, Sidesteps Constitutional Question

• Published date: 30 May 2020
• Author: Ms Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd and Ammaar Joya
• Subject Matter: Government, Public Sector, Energy and Natural Resources, Energy Law, Constitutional & Administrative Law
• Law Firm: Kirkland & Ellis International LLP

On January 30, 2020, the Federal Energy Regulatory Commission ("FERC"), in a 2-1 vote, issued an order on condemnation rights of natural gas companies that hold a certificate of public convenience and necessity under section 7(h) of the Natural Gas Act ("NGA"),¹ which may have wide-reaching effects for interstate natural gas pipeline companies, end-users of natural gas, and their investors. On May 21, 2020, FERC upheld its interpretation by issuing an order denying rehearing, in a 3-1 vote. As described below, FERC's decision conflicts with recent court action and is being tested in pending litigation.

Background

In the latter part of 2019, the U.S. Court of Appeals for the Third Circuit issued an order barring PennEast Pipeline Company, LLC ("PennEast") from condemning state-owned land in New Jersey to build an interstate natural gas pipeline.² FERC issued a certificate of public convenience and necessity to PennEast in early 2018,³ which automatically conferred federal eminent domain authority on PennEast under section 7(h) of the NGA. However, according to the Third Circuit decision, the eminent domain authority that section 7(h) delegates does not apply to land in which a state claims an interest. The court thus held that PennEast could not condemn any land in which New Jersey claims any kind of property interest.

In response to the Third Circuit decision, PennEast filed a Petition for Declaratory Order ("Petition") in October 2019, asking FERC to address the scope of the condemnation power delegated to PennEast by NGA section 7(h).⁴ On February 18, 2020, the pipeline also filed a petition for writ of certiorari seeking U.S. Supreme Court review of the Third Circuit decision.⁵

FERC Decision on Scope of Condemnation Rights

In its Petition, PennEast asked FERC to address the following specific questions of both statutory and constitutional interpretation:

1. whether a certificate holder's right to condemn land pursuant to NGA section 7(h) applies to property in which a state holds an interest;
2. whether NGA section 7(h) delegates the federal government's eminent domain authority solely to certificate holders; and
3. whether NGA section 7(h) delegates to certificate holders the federal government's exemption from claims of state sovereign immunity.

In response to PennEast's first question, FERC found that the statutory text, legislative history and precedent support the conclusion that NGA section 7(h) applies to state-owned property. FERC explained that...