Supreme Court feud set to shake up eminent domain, gas

By Niina H. Farah | 04/28/2021 07:28 AM EDT

The Supreme Court today will wade into a battle over construction of the PennEast natural gas pipeline in New Jersey that has escalated into a clash over federal energy law and states’ rights. The outcome could have major implications for the natural gas sector.

Supreme Court justices are set to hear oral arguments today in a high-profile case with potential implications for a private company's ability to use eminent domain rights to seize state-owned land for pipeline construction.

Supreme Court justices are set to hear oral arguments today in a high-profile case with potential implications for a private company's ability to use eminent domain rights to seize state-owned land for pipeline construction. Francis Chung/E&E News

The Supreme Court today will wade into a battle over construction of the PennEast natural gas pipeline that has escalated into a clash over federal energy law and states’ rights.

The justices will hear oral arguments this morning on whether PennEast Pipeline Co. LLC had the power to bring New Jersey to federal court against its will in the company’s efforts to seize 42 parcels of land owned by the Garden State for construction of its 116-mile pipeline from Pennsylvania.

The outcome of PennEast v. New Jersey could have important implications for the natural gas sector and for states’ ability to block the use of their land for pipeline projects they oppose.


"We obviously feel this is an issue of critical importance not only to this project but to the industry as a whole," said Anthony Cox, chairman of PennEast’s board of managers.

PennEast is seeking to overturn a 2019 decision from the 3rd U.S. Circuit Court of Appeals. The lower court found that PennEast had violated the Garden State’s "sovereign immunity" under the 11th Amendment of the Constitution, which protects states from being sued against their will by private companies in federal court.

With the support of acting Solicitor General Elizabeth Prelogar, the pipeline developer has argued that the 3rd Circuit decision violated a long-standing interpretation of part of the Natural Gas Act, which allows the federal government to delegate its eminent domain authority for the construction of projects it has approved (Energywire, March 10).

The company argued that for decades the Federal Energy Regulatory Commission has interpreted the statute to allow developers like PennEast to condemn both state and private land once they receive a FERC certificate establishing that there is a public need for a project.

The 3rd Circuit decision has created uncertainty within the industry that the Supreme Court can now help resolve, said Cox. He added that the historical context of the provision of the Natural Gas Act at issue makes it clear that Congress was concerned about states blocking natural gas pipelines.

This "part of the Natural Gas Act was created explicitly to prevent something like this from happening where you have a state that can stand in the way of interstate commerce," Cox said.

He later added: "The 3rd Circuit decision basically has the potential of unseating all of that."

Historical documents on the drafting of the Constitution reveal the role sovereign immunity was intended for by the document’s framers, said Pam Witmer, vice president of government affairs at UGI Energy Services LLC, the manager and future operator of the PennEast project.

"New Jersey doesn’t have an argument to make when you look at how the Constitution itself was put together and how states’ rights were determined," she said.

The Garden State has rejected that reading of the Constitution, saying that condemnation of state land at the time the document was drafted was "unheard of."

"Indeed, while the federal condemnation power is well established today, at the Founding this power was disputed and at times flatly denied — even for private land," the state wrote in a brief to the Supreme Court.

Pipeline supporters have argued to the high court that the Natural Gas Act’s silence on exemptions for state-held land clears the way for private companies to use eminent domain for approved projects.

But industry critics point to the 3rd Circuit’s finding that the ambiguity of the statute instead means that state lands are protected under sovereign immunity.

"In the absence of any indication in the text of the statute that Congress intended to delegate the federal government’s exemption from state sovereign immunity to private gas companies, we will not assume or infer such an intent," the panel wrote. "[W]e will not assume that Congress intended — by its silence — to upend a fundamental aspect of our constitutional design."

Ripple effects

PennEast pipeline map. Credit: Claudine Hellmuth/E&E News
PennEast pipeline.

Parties on both sides of the dispute warn of the broader impacts of the Supreme Court’s decision in PennEast.

In a joint amicus brief to the court, state governments said that allowing private companies to use federal authority to condemn state lands "dramatically alters" the balance of powers between the federal government and the states.

"States have a sovereign prerogative — and in many cases, a constitutional obligation — to preserve, manage, and control State land for the benefit of their citizens," the states wrote. "To carry out those mandates and develop workable plans for land use, States and localities rely on the stability of State property interests."

Meanwhile, the natural gas industry has warned that the 3rd Circuit ruling enables a state-led blockade of natural gas development.

The decision "is creating a real quagmire for energy development in general," said Cox of PennEast.

Opponents of the pipeline say these warnings are overblown.

"The Supreme Court case is really about this narrow issue of, does PennEast have the right to condemn the land preserved and held by the state of New Jersey, and was there an explicit override of the state sovereign immunity from being hailed into federal court by a private party or not?" said Tom Gilbert, campaign director at the New Jersey Conservation Foundation, which is a defendant in the case alongside the state.

Pipeline critics note that the sovereign immunity argument has only come up in one other natural gas pipeline case: a paused dispute in the 4th U.S. Circuit Court of Appeals over the Eastern Panhandle Expansion Project in Maryland.

"I don’t necessarily think the impact on the natural gas sector would have to be all that significant," wrote University of Minnesota law professor Alexandra Klass in an email.

"Many states welcome natural gas pipelines," she continued. "Other pipelines don’t cross state lands or could be designed to avoid state lands (just like they avoid critical habitat for endangered species, etc.), for those states that are opposed to one or more natural gas pipelines."

Even if PennEast loses its case, Congress could give FERC the ability to use eminent domain authority on state lands instead of the natural gas company, she added.

In addition to tackling the 11th Amendment issue, the Supreme Court will also parse whether the 3rd Circuit should have heard the case to begin with. The court’s decision on this issue could change the way states seek to assert their rights over land they control.

The argument over jurisdiction in the case comes after the Biden administration argued that New Jersey should have first brought up its challenge in a FERC proceeding. Instead, New Jersey raised its concerns through eminent domain litigation.

New Jersey and pipeline critics warn that the government’s position would create a heavier burden on states to raise claims early in the FERC approval process, before they may fully know the extent of a project’s impact on their lands.

A ruling in the government’s favor would mean that states seeking to raise sovereign immunity concerns would have to do so first in FERC proceedings and then in the U.S. Court of Appeals for the District of Columbia Circuit or the federal appeals court where the project is being built, said Klass.

PennEast’s future

If the Supreme Court upholds the 3rd Circuit decision, PennEast would not be able to seize land owned by New Jersey, putting the pipeline developer in a challenging position, project opponents said.

PennEast has already asked FERC to allow the project to be split into phases. The first phase would begin construction on the Pennsylvania portion of the project next year. That plan would allow the company to supply a limited number of customers in the Keystone State until it can complete the second phase of construction in New Jersey at a later date.

The proposal is still pending before FERC.

If instead the justices overturn the 3rd Circuit ruling, PennEast would have the legal right to condemn the New Jersey lands, but the pipeline would still face many other hurdles. Construction has not yet begun on the project, and it is still lacking key approvals in New Jersey.

"We think regardless of the outcome at the Supreme Court that this is a project that is not needed and won’t meet environmental standards and now won’t be built," said Gilbert of the New Jersey Conservation Foundation.

The Supreme Court’s ruling will restart another legal fight in the D.C. Circuit over the underlying need for PennEast. The lower court battle has been on ice pending the justices’ decision in the eminent domain battle.

While PennEast argues the pipeline is needed to meet peak demand in New Jersey and transport cheap natural gas from Pennsylvania, the New Jersey Conservation Foundation says the region already has more than enough natural gas pipeline capacity, even on the coldest recorded days.

Missing permits

Regardless of the outcome of PennEast, the pipeline still lacks key approvals in New Jersey and Pennsylvania.

The Delaware River Basin Commission, an interstate agency, has yet to grant a permit for the pipeline to cross through the Delaware River Basin watershed.

New Jersey has denied a Clean Water Act Section 401 permit for New Jersey’s share of the pipeline. The certifications affirm that federally approved projects comply with state water quality standards.

Pennsylvania has issued its 401 certification for PennEast, but the project is still missing other permits from the state, said Maya van Rossum, the head of the Delaware Riverkeeper Network, which has been opposing the pipeline on multiple fronts but is not a part of the Supreme Court case.

"There are a lot of pieces to this puzzle that are missing and that we intend to never let be found or be put in place," said van Rossum.

Gilbert said that building PennEast would harm habitat for endangered species and would disrupt farmland and open spaces for New Jersey residents.

"This is an area of the state that has a significant natural resource, agricultural, historic and scenic resources where the state and various parties for decades have been making significant investments in taxpayer dollars to protect these lands," Gilbert said.

He continued: "You couldn’t pick a worse route, a more sensitive area to construct the pipeline."

Arguments take place at 11 a.m. today. The Supreme Court is expected to issue its decision by early summer.