United States Court of Appeals, District of Columbia Circuit
May 6, 2019
Petitions for Review of Orders of the Federal Energy
Carolyn Elefant argued the cause for petitioners. With her on
the briefs were Aaron Ridenbaugh and David A. Mucklow.
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.
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
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.
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
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
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).
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).
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)
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.
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.
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
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.
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 ...