DC circuit allows pipeline certificate to be maintained, accepting pre-export agreements as proof of necessity | Troutman pepper

On July 8, 2022, the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) issued its decision in City of Oberlin, Ohio c. FERC, a proceeding dealing with whether FERC properly granted NEXUS Gas Transmission, LLC (“Nexus”) a certificate of public convenience and necessity to construct and operate a natural gas pipeline that will facilitate exports to Canadian markets ( “Project”). The Court upheld the certificate.

In November 2015, Nexus filed an application for the construction of a new pipeline that will provide up to 1.5 Bcf/day of firm transportation service from supply areas in the Appalachian Basin to consumer markets in Ohio and Michigan, and to the Dawn Hub, where the gas is piped. traded across the Canada-US border. As part of its application, Nexus entered into eight pre-arranged agreements (long-term contracts with shippers) representing approximately 60% of the total pipeline capacity, including two with Canadian companies that will serve customers in Canada. After FERC granted the certificate to Nexus, the City of Oberlin (“Oberlin”) requested a DC Circuit review, challenging FERC’s reliance on previous export agreements as evidence of “need” for the pipeline as unjustified and unlawful under Section 7 of the Natural Gas Act (“NGA”). The Court agreed and sent the proceedings back to FERC. On Remand (“Reminder Order”), FERC confirmed the issuance of its certificate and provided additional explanations as to why its credit from previous export agreements was legal.

The DC Circuit’s July 8 decision rules on Oberlin’s second motion for review, which challenged FERC’s remand order. First, Oberlin argued that the removal order was contrary to law because gas for export is not traded interstate and therefore FERC could not consider exports when assessment of a certificate under Section 7. Oberlin argued that FERC should have analyzed the project as an export facility under Section 3 of the NGA if it had wanted to rely on export agreements to reach its decision. Oberlin also claimed that FERC’s decision was arbitrary and capricious.

The Court disagreed. With respect to Oberlin’s first claim, the Court found that FERC had properly analyzed the project under Section 7. The Court found that where “gas for export is blended with intended for domestic use, between States”, this mixed gas intended for export “became interstate gas itself. Thus, the Court determined that the previous export agreements were part of interstate commerce. Because section 7 allows FERC to consider all factors that may affect the public interest, the Court found that FERC’s review of export agreements was appropriate.

The Court also held that FERC reasonably justified its review of the export agreements because FERC: (1) relied on a congressional ruling that exports to free-trade countries like Canada are beneficial to the public and are therefore in themselves in the public interest under section 3; (2) describes a series of national benefits resulting from increased gas transportation, regardless of where the gas will ultimately be consumed; (3) explained that these particular previous export agreements demonstrated a need for additional transport capacity to the Dawn hub, which served national interests; and (4) explained that export agreements did not violate the levies clause because they “served a public use”.

Finally, the Court upheld FERC’s alternative explanation that the Project meets the requirements of Section 7, namely that the Project will relieve a capacity bottleneck by facilitating shipments from the Appalachian Basin to markets. of the Midwest.

A copy of the DC circuit decision can be found here.

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