FERC rules on Natural Gas Act eminent domain and sovereign immunity

U.S. natural gas pipeline regulators have issued an order partially granting a pipeline company's request for a declaratory order interpreting the scope of eminent domain authority under the federal Natural Gas Act.

At issue is a petition by PennEast Pipeline Company, LLC to the Federal Energy Regulatory Commission, seeking a declaratory order. In 2018, the Commission issued a certificate of public convenience and necessity for the PennEast Project, a 116-mile greenfield natural gas pipeline connecting the Marcellus Shale region in Pennsylvania to regional delivery points serving New Jersey, New York, and Pennsylvania.

According to PennEast's subsequent petition for declaratory order, following issuance of the certificate, PennEast was unable to reach agreement with the State of New Jersey to acquire easements for the portions of its proposed pipeline route that would cross state lands and other properties in which the state claims non-possessory property interests such as conservation easements, so the company instituted condemnation proceedings in the United States District Court for the District of New Jersey in order to obtain these and other necessary easements. While New Jersey sought dismissal of the condemnation actions on grounds that the state possesses sovereign immunity, the District Court granted PennEast's application for orders of condemnation, finding that PennEast “has been vested with the federal government’s eminent domain powers and stands in the shoes of the sovereign.”

New Jersey then appealed to the United States Court of Appeals for the Third Circuit, which vacated the District Court’s order, instead holding that the Natural Gas Act does not abrogate New Jersey’s sovereign immunity, and that “the NGA does not constitute a delegation to private parties of the federal government’s exemption from Eleventh Amendment immunity."

PennEast then returned to the Commission, seeking a declaratory order that addresses 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; whether NGA section 7(h) delegates the federal government’s eminent domain authority solely to certificate holders; and whether NGA section 7(h) delegates to certificate holders the federal government’s exemption from claims of state sovereign immunity.

In its January 30, 2020 order, the Commission partially granted PennEast's requests. With respect to 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, the Commission found that that NGA section 7(h) does not limit a certificate holder’s right to exercise eminent domain authority over state-owned land. The Commission further found that NGA section 7(h) delegates eminent domain authority solely to certificate holders and not to the Commission. The Commission also found that NGA section 7(h) necessarily delegates the federal government’s exemption from state sovereign immunity, but denied PennEast's petition to the extent that it would require the Commission to evaluate the constitutional sufficiency of NGA section 7(h) for purposes of abrogating state sovereign immunity or delegating federal authority under the Eleventh Amendment.

The majority order concludes:

In enacting the NGA, Congress established a carefully crafted comprehensive scheme in which the Commission was charged with vindicating the public interest inherent in the transportation and sale of natural gas in interstate and foreign commerce, in significant part through the issuance of certificates of public convenience and necessity for interstate gas pipelines. A key aspect of this scheme was the remit to natural gas companies of the ability to exercise, where necessary, the power of eminent domain to acquire lands needed for projects authorized by the Commission. We here confirm our strong belief that NGA section 7(h) empowers natural gas companies, and not the Commission, to exercise eminent domain and that this authority applies to lands in which states hold interest. A contrary finding would be flatly inconsistent with Congressional intent, as expressed in the text of NGA section 7(h), which is also supported by the legislative history.

Commissioner Glick dissented on both procedural and substantive grounds and provided a separate statement, arguing that the Commission did not need "to insert itself into what is primarily a constitutional question that is being litigated where those questions belong: The federal courts." Commissioner Glick also disagreed with the majority that Congress unambiguously intended section 7(h) to apply state lands, finding that "the evidence simply is not clear one way or the other."