States cannot block condemnation under the Natural Gas Act with sovereign immunity

By Gillian Flick and Jon Beckman
Steptoe & Johnson PLLC

In a 5-4 decision issued on June 29, the United States Supreme Court overturned a Third Circuit ruling in PennEast Pipeline Company, LLC v. New Jersey, allowing PennEast Pipeline Company, LLC  to use the federally delegated power of eminent domain to cross land owned or controlled by New Jersey. No. 19-1039,  — S.Ct. —, 2021 WL 2653262. The Supreme Court held that states cannot use 11th Amendment sovereign immunity to block condemnation of state lands brought under the Natural Gas Act (NGA). Reversing the Third Circuit, the court concluded that the Federal Energy Regulatory Commission (FERC) can delegate its condemnation authority to private companies who can then override a state’s sovereign immunity derived from the 11th Amendment of the United States Constitution.

PennEast is a joint venture comprised of several private companies that deliver energy to Pennsylvania and New Jersey. In 2015, FERC granted PennEast a Certificate of Public Convenience and Necessity, authorizing construction of a 116-mile natural gas pipeline from Pennsylvania to New Jersey.

PennEast commenced condemnation actions under the NGA to acquire properties for the pipeline. Forty-two of the properties are owned by the state of New Jersey or “various arms of the State.” PennEast sued New Jersey in federal court seeking to condemn the properties and gain immediate access.  See In re PennEast Pipeline Company, 938 F.ed 96, 99 (3d Cir. 2019). New Jersey did not consent to the suits and moved to dismiss the actions for lack of jurisdiction pursuant to 11th Amendment sovereign immunity from suits commenced by private parties in federal court. The District Court held that the condemnation actions were not barred by the state’s immunity and granted relief in favor of PennEast. New Jersey appealed to the Third Circuit.

The Third Circuit vacated, holding that 11th Amendment sovereign immunity is not abrogated by the NGA. Id. Moreover, the Third Circuit held that the federal government’s exemption from the state’s sovereign immunity has not been delegated to PennEast. Finding that “[t]he federal government’s power of eminent domain and its power to hale sovereign States into federal court are separate and distinct.” Id. at 100. The Third Circuit concluded that “[i]n the NGA, Congress has delegated the former” and not the latter. Id.

On appeal, the United States Supreme Court considered “[w]hether the Federal Government can constitutionally confer on pipeline companies the authority to condemn necessary rights of way in which a State has an interest.” PennEast, 2021 WL 2653262 at *4.

The Supreme Court reversed the Third Circuit, holding that the holder of a certificate issued by FERC is authorized under the NGA to condemn all rights of way needed to construct the natural gas pipeline facility regardless of private or state ownership. Id. at *9. The court noted that “[f]or as long as the eminent domain power has been exercised by the United States, it has been delegated to private parties.” Id. at *8. “State property,” the court continued, “was not immune from the exercise of delegated eminent domain power.” Id.

Congress, by passing Section 717f(h) of the NGA endowed private pipeline developers with federal eminent domain power. “No one disputes that § 717f(h) [of the NGA] was passed specifically to solve the problem of States impeding interstate pipeline development by withholding access to their own eminent domain procedures.” The court stated, “[a]lthough nonconsenting States are generally immune from suit, they surrendered their immunity from the exercise of the federal eminent domain power when they ratified the Constitution.” Id. at *4. Anthony Cox, Chair of the PennEast Board of Managers said “[t]his decision is about more than just the PennEast project; it protects consumers who rely on infrastructure projects―found to be in the public benefit after thorough scientific and environmental reviews―from being denied access to much-needed energy by narrow State political interests.” PennEast Statement on Favorable U.S. Supreme Court Decision, June 29, 2021, https://penneastpipeline.com/penneast-pipeline-statement-on-favorable-u-s-supreme-court-decision (accessed July 5).

The Third Circuit’s decision, which threatened the viability of constructing public infrastructure projects via private companies beyond the NGA, is no more. While states may still use the environmental permitting process to regulate development, they cannot claim sovereign immunity to simply bar condemnation of state lands under the NGA.

PIOGA’s participation in the PennEast case

By Kevin J. Moody
General Counsel, PIOGA

PIOGA participated in this case with the Marcellus Shale Coalition (MSC) in support of the PennEast Pipeline. While both the MSC and PIOGA have members in all three sectors of the natural gas industry―upstream, midstream and downstream―the MSC/PIOGA amicus brief focused on the impacts of the Third Circuit’s decision on the upstream sector because other participants addressed the direct impact of the lower court’s decision on the other sectors.

Our amicus brief pointed out that in 2019, Pennsylvania accounted for 20 percent of the United States’ natural gas production and produced more natural gas than any state except Texas, and we explained that the upstream exploration and production (E&P) companies that drill for and produce natural gas must rely on pipelines to get that gas to market for the benefit of end users throughout the country. Our brief plainly stated the significant negative effects of the Third Circuit’s decision on the natural gas industry and the Commonwealth of Pennsylvania:

Without adequate pipelines to get their product to market, E&P companies will need to curtail their drilling of new wells, causing a negative impact on those companies and on the good paying, stable jobs they provide. Additionally, royalty owners, including the Commonwealth, will suffer reduced royalties. The reduction in income for workers and landowners will have a cascade effect on the larger economy in Pennsylvania.

Perhaps the most significant portion of our amicus brief concerning the overriding legal issue before the Supreme Court was the information concerning the extensive public lands in which Pennsylvania claims an interest. We stated that the Commonwealth has possessory interests in approximately 4 million acres, with more than 13.5 percent of the state’s land area owned in fee by Commonwealth agencies. Further, those 4 million acres do not include lands on which the Commonwealth or a political subdivision may hold an agricultural preservation or conservation easement under various conservation statutes. For example, as of 2017 an additional 4 million acres were enrolled in Agricultural Security Areas according to the Pennsylvania Land Trust Association.

Certainly the most consequential part of this portion of our amicus brief was inclusion of the Pennsylvania Department of Conservation and Natural Resources (DCNR) map of publicly owned streambeds.

Although our brief informed the court that many individuals and organizations, including the MSC and PIOGA, disagree with the Commonwealth’s claimed ownership of streambeds, the DCNR map illustrated, in ways that words cannot, the impossibility of constructing an interstate pipeline through Pennsylvania if the Third Circuit’s decision upsetting  more than 80 years of precedent was upheld. Justice Breyer’s opening argument to New Jersey’s attorney shows how important the DCNR map was to his argument, which captures the essence of the Court’s decision:

Go back for a minute. To the late 1940s, early 1950s most of the natural gas was in the Permian basin in Oklahoma and in texas and they were on the verge of or had built pipelines to carry that natural gas to California san Diego el paso natural gas We’re [or] up to pennsylvania over d [to] Illinois, up to massachusetts.. Lots of the state[s], not a lot, but some were objecting in a whole variety of complex way. And so Congress passed the Natural Gas Act. No, they couldn’t have built the pipelines unless they had this power, I think. I’m not certain of that, but I don’t see how they could have, because they need to go look at the map on the map of water ways in which pennsylvania claims an interest in the Marcellus shale coalition [brief.] day zone waterbeds [They own waterbeds.] They own all kinds of obstacles, but this was passed to build a pipeline. How could they have done it? I don’t see it. And having known a little bit about that, since you need the federal power or a government power to for a private person to use eminent domain for anything against a private land or by a state, I don’t understand how they would have, how any reasonable person would have delegated any eminent domain power to the Natural Gas Act , which was for interstate pipelines without including the power to proceed against the state. Am I right about that? . . . You see the [thrust] of my argument[,] very historical, But that’s been the understanding for the last 80 years. [PennEast Pipeline Co. v. New Jersey] Oral Argument, transcript at 100:25-102:12/102:55-103:01, C-SPAN Video Library (emphasis added).

The MSC/PIOGA amicus brief is available in the Members Only area of PIOGA’s website.