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City of Oberlin, Ohio v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

September 6, 2019

City of Oberlin, Ohio, Petitioner
Federal Energy Regulatory Commission, Respondent NEXUS Gas Transmission, LLC, Intervenor

          Argued May 6, 2019

          On Petitions for Review of Orders of the Federal Energy Regulatory Commission

          Carolyn Elefant argued the cause for petitioners. With her on the briefs were Aaron Ridenbaugh and David A. Mucklow.

          Carol J. Banta, Senior Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were James P. Danly, General Counsel, and Robert H. Solomon, Solicitor.

          David A. Super argued the cause for intervenor. With him on the brief were Kevin A. Ewing and Britt Cass Steckman.

          Before: Rogers, Srinivasan, and Wilkins, Circuit Judges.


          Wilkins, Circuit Judge

         In reviewing an agency's justifications for its actions, principles of administrative law demand, sensibly, that we strike a balance. On the one hand, we must not micromanage. Agencies are the experts and requiring full exposition at every turn would impede their ability to carry out their specialized statutory duties. On the other hand, we must insist on reasoned justifications.

         The instant matter asks us, once again, to perform this balancing act. Petitioners are the City of Oberlin, Ohio, and the Coalition to Reroute Nexus, an organization of landowners. They ask us to vacate the Federal Energy Regulatory Commission's order authorizing Nexus Gas Transmission, LLC, to construct and operate an interstate natural gas pipeline and exercise the right of eminent domain to acquire any necessary rights-of-way. Petitioners also ask us to vacate the Commission's order denying their requests for rehearing. In short, Petitioners complain that the Commission's orders allowed the pipeline to transect their properties, to their properties' detriment, and gave Nexus the right to condemn certain easements over their objections.

         Petitioners raise many arguments, the vast majority of which we reject. We agree with them, however, that the Commission failed to adequately justify its determination that it is lawful to credit Nexus's contracts with foreign shippers serving foreign customers as evidence of market demand for the interstate pipeline. Accordingly, we remand without vacatur to the Commission for further explanation of this determination.


         The Natural Gas Act, 52 Stat. 821 (1938) (codified as amended at 15 U.S.C. §§ 717-717z), vests authority in the Commission to regulate the transportation and sale of natural gas in interstate commerce. In passing it, Congress had two principal aims: "encourag[ing] the orderly development of plentiful supplies of . . . natural gas at reasonable prices," Minisink Residents for Envtl. Pres. & Safety v. FERC, 762 F.3d 97, 101 (D.C. Cir. 2014) (quoting NAACP v. Fed. Power Comm'n, 425 U.S. 662, 669-70 (1976)) (alteration in original), and "protect[ing] consumers against exploitation at the hands of natural gas companies," id. (quoting Fed. Power Comm'n v. Hope Nat. Gas Co., 320 U.S. 591, 610 (1944)) (alteration in original).

         Section 7 of the Act requires an entity seeking to construct or extend an interstate pipeline for the transportation of natural gas to obtain from the Commission a "certificate of public convenience and necessity." 15 U.S.C. § 717f(c)(1)(A). In a policy statement, the Commission set forth the criteria it considers in reviewing an application for a Section 7 certificate. Certification of New Interstate Nat. Gas Pipeline Facilities, 88 FERC ¶ 61, 227 (Sept. 15, 1999), clarified, 90 FERC ¶ 61, 128 (Feb. 9, 2000), further clarified, 92 FERC ¶ 61, 094 (July 28, 2000) ("Certificate Policy Statement"). First, an applicant must demonstrate that it is "prepared to develop the project without relying on subsidization by the sponsor's existing customers." 88 FERC at 61, 750. If the applicant makes this showing, the Commission will issue a certificate of public convenience and necessity only if a project's public benefits (such as meeting unserved market demand) outweigh its adverse effects (such as a deleterious environmental impact on the surrounding community). 90 FERC at 61, 396. If the Commission issues a Section 7 certificate to an applicant, the Act confers on the certificate holder the right to "exercise . . . eminent domain" to acquire any land necessary to the project's completion. 15 U.S.C. § 717f(h).

         As part of the Section 7 certificating process, before approving an interstate gas pipeline the Commission must complete an environmental review of the proposed project under the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq. Specifically, for federal actions of requisite significance (including the issuance of a Section 7 certificate), NEPA requires an agency to prepare an Environmental Impact Statement, § 4332(C), in which the agency must "identify the reasonable alternatives to the contemplated action and . . . . look hard at the environmental effects of [its] decision," including a project's impact on public safety. Corridor H Alts., Inc. v. Slater, 166 F.3d 368, 374 (D.C. Cir. 1999) (citation omitted).

         Lastly, we note that the Commission has limited authority to regulate the import and export of natural gas under Section 3 of the Act, 15 U.S.C. § 717b. See generally EarthReports, Inc. v. FERC, 828 F.3d 949, 952-53 (D.C. Cir. 2016). Section 3 provides that no person shall import or export natural gas "without first having secured an order of the Commission authorizing it to do so," and it instructs that the Commission shall issue such an order unless its finds that the import or export "will not be consistent with the public interest." 15 U.S.C. § 717b(a). As the Commission has explained, however, Congress transferred Section 3's regulatory function to the Secretary of Energy. See Rover Pipeline, LLC, 158 FERC ¶ 61, 109, ¶ 49 n.43 (Feb. 2, 2017) (citing 42 U.S.C. § 7151(b)). Subsequently, the Secretary delegated back to the Commission the narrow authority to approve or disapprove the construction and siting of facilities where natural gas will be imported or exported. Id. (citing U.S. Dep't of Energy, Delegation Order No. 00-004.00A, § 1.21.A (eff. May 16, 2006)). But the Secretary retains exclusive authority to approve or disapprove the import and export of natural gas. Id.


         On November 20, 2015, Nexus sought from the Commission authorization under Section 7 to build and operate approximately 257 miles of a new natural gas pipeline to transport 1.5 million dekatherms per day ("dth/day") of Appalachian Basin shale gas to consuming markets in northern Ohio, southeastern Michigan, and Ontario, Canada. The pipeline begins and ends in the United States; it extends from Hanover Township in Columbiana County, Ohio, to Ypsilanti Township in Washtenaw County, Michigan. In marketing the pipeline from 2012 through 2015, Nexus entered into precedent agreements - i.e., long-term contracts - with eight different entities, for 885, 000 dth/day, or 59%, of the pipeline's 1.5 million dth/day capacity. Of the eight entities Nexus contracted with, four are affiliates of the pipeline's sponsors, and two are "Canadian companies serving customers in Canada." Resp't's Br. 28 (citing J.A. 1228). Nexus's precedent agreements with the Canadian shippers are for a total of 260, 000 dth/day. Id.

         On August 25, 2017, the Commission issued an order granting Nexus a Section 7 certificate of public convenience and necessity. See Nexus Gas Transmission, LLC, 160 FERC ¶ 61, 022 (Aug. 25, 2017); J.A. 1036-123. And on July 25, 2018, the Commission issued an order denying Petitioners' requests for rehearing. See Nexus Gas Transmission, LLC, 164 FERC ¶ 61, 054 (July 25, 2018); J.A. 1206-89. In its orders, the Commission made three determinations that are especially relevant to Petitioners' challenges. First, it found that Nexus's precedent agreements were "the best evidence" that the pipeline served unmet market demand. Id. at 1218. Second, it approved Nexus's proposed 14% return on equity, subject to the condition that Nexus design its initial customer rate based on a hypothetical capital structure of 50% equity and 50% debt. Id. at 1233. Third, it found that the pipeline does not "represent a significant safety risk to the public." Id. at 1259.

         On October 2, 2017 (i.e., after the Commission issued Nexus a Section 7 certificate but before it denied Petitioners' requests for rehearing), Nexus filed a condemnation action, pursuant to Section 7, see 15 U.S.C. § 717f(h), against Petitioners in the Northern District of Ohio. On December 28, 2017, the district court found that Nexus had the right to exercise eminent domain to condemn certain easements over Petitioners' properties. See Nexus Gas Transmission, LLC v. City of Green, No. 5:17-cv-2062, 2017 WL 6624511, at *3 (N.D. Ohio Dec. 28, 2017), appeal dismissed, 2018 WL 2072616 (6th Cir. Feb. 9, 2018). Shortly thereafter, Nexus exercised that right. See Pet'rs' Br., Standing Addendum 3.

         In September 2018, Petitioners filed the instant matter. They ask us to vacate the Commission's order of August 25, 2017, granting Nexus a Section 7 certificate, as well as its order of July 25, 2018, denying Petitioners' requests for rehearing. On May 6, 2019, we heard oral argument. Thereafter, based on certain post-argument events, Nexus filed a ...

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