November 18, 2019

Federal Appeals Court Ruling Threatens Current And Future Pipeline Development

Earlier this month, the U.S. Court of Appeals for the Third Circuit denied a petition by PennEast Pipeline for a full-court rehearing of a September 20, 2019 ruling by a three-judge panel. PennEast is a natural gas pipeline that would run 118 miles from northeastern Pennsylvania to southern New Jersey. Approved by Federal Energy Regulatory Commission (FERC) in 2018, it is a joint venture that includes Enbridge and UGI Energy Services, along with three local distribution companies that serve the region.

That decision lets stand the panel’s ruling that in effect disallowed the exercise of federal eminent domain authority by the project owner to acquire right-of-way on land either owned directly by the State of New Jersey or in which the state holds an interest, including a conservation, agricultural, or recreational easement.

This ruling poses a serious new threat to interstate natural gas pipeline projects’ ability to exercise federal eminent domain authority to acquire right-of-way easements from property owners who refuse to reach a deal with the developer. Although the ruling applies to the PennEast project in New Jersey, it threatens to set precedent for the exercise of eminent domain involving any state’s property interests along the route of any interstate natural gas pipeline project.

The full court’s rehearing denial reaffirms the panel’s finding that a project owner’s exercise of federal eminent domain authority on state-owned land is precluded by the 11th Amendment to the U.S. Constitution, which grants a state “sovereign immunity” from federal court lawsuits brought by private entities—such as a pipeline company. In effect, this means that a landowner can prevent a FERC-approved interstate natural gas pipeline from being routed through its property by granting a conservation, agricultural, or recreational easement to the state, thus shielding it from eminent domain.

Virtually no interstate pipeline of any length can be built without crossing some land or water in which the state either has direct ownership or an easement interest. If the ruling stands, its precedent would encourage pipeline opponents to block projects in any state by getting opposing landowners along the proposed route to grant easements to the state.

A possible next step is an appeal by PennEast to the U.S. Supreme Court to overturn the appeals court’s ruling. The company has said it remains committed to the project and is evaluating its options, but has not yet indicated if it will appeal the decision to the Supreme Court.

Given the impacts this could have on PennEast and future interstate natural gas pipeline projects, the Metals Service Center Institute, with its partners at the Energy Equipment and Infrastructure Alliance will keep members informed of any new developments and will consider options the association might take to support reversal of the ruling.