Caselaw Update: Exercise of Eminent Domain under the Natural Gas Act

Since the early 1800s, natural gas has been an integral part of the nation’s energy supply.  Roughly one hundred years later, a cross-country natural gas pipeline network began to take shape and expand.  In 1938, in response to the booming pipeline infrastructure, Congress passed the Natural Gas Act (“NGA”) to regulate the transportation and sale of natural gas.  

The NGA requires natural gas companies to obtain a certificate of public convenience and necessity before constructing an interstate pipeline.  The applying party must prove to the Federal Energy Regulatory Commission (“FERC”) that the pipeline’s construction is for the present or future benefit of the public.  However, the NGA did not originally provide a mechanism for certificate holders to secure property rights necessary to build their pipelines.  If pipeline companies encountered a party that did not wish to provide rights-of-way for the pipeline, they had few, if any, powers to obtain the necessary land.  Pipeline companies could only exercise state eminent domain procedures.  Eminent domain is the power by which the government (or a delegated entity standing in its shoes) can take property for public use without the consent of the owner.  Unless the pipeline company could prove direct benefits to the residents of that state, these rights were often made unavailable to them by the states in which the construction was to occur.  The remaining states simply refused to permit an “out-of-state” company to exercise eminent domain within their borders.  In response, the NGA was amended in 1947 to authorize certificate holders to exercise the federal government’s eminent domain power under 15 U.S.C. Section 717f(h).  This amendment provided that if a pipeline company holding a FERC certificate could not procure rights-of-way (on either private or state-owned land) by means of contract or agreement, that company could exercise the federal government’s eminent domain powers by filing complaints in federal district courts in which the land was located or in the appropriate State courts. 

In 2015, PennEast Pipeline Co., LLC, a joint venture owned by several energy companies, applied to the FERC for a certificate of public convenience and necessity authorizing the construction of a 116-mile pipeline from Pennsylvania to New Jersey. Three years later, after holding requisite public hearings and reviewing thousands of comments, the FERC granted PennEast’s application.  The State of New Jersey and the New Jersey Conservation Foundation (“NJCF”) refused to contract with PennEast for 42 parcels of land necessary for the construction of the proposed pipeline.  PennEast in turn filed various complaints in the federal district court of New Jersey seeking to condemn these parcels of land held by the State of New Jersey and the NJCF for pipeline right-of-way. The state of New Jersey countered that a state must consent to a condemnation action, and any suit brought in an action to condemn state land is unconstitutional because of sovereign immunity provided by the Eleventh Amendment.  In essence, states are immune to lawsuits brought by private parties.  However, New Jersey did not dispute that the NGA gave pipeline companies the power to condemn private land.   

After New Jersey received a favorable ruling from an appeal to the Third Circuit, PennEast appealed to the United States Supreme Court, which considered whether the federal government can constitutionally confer on pipeline companies the authority to condemn necessary rights-of-way against a nonconsenting state.  On June 29, 2021, the Court ruled that Section 717f(h) of the NGA does indeed confer upon pipeline companies a right to condemn private and state-owned lands. The Court reasoned that the federal government has, since its founding, exercised eminent domain for the benefit of society (by building roads, bridges, railroads, telecommunications infrastructure, and electrical transmission facilities), and has delegated this power to private parties to that end.  The Court noted that when states ratify the U.S. Constitution, they waive their right to immunity from suits brought by the federal government, or by a private party acting with the federal government’s authority.  Since the eminent domain power is so “inextricably intwined with the ability to condemn,” these two powers cannot be separated.  

The PennEast ruling is significant; a natural gas company holding a FERC certificate of public convenience and necessity has the power to “condemn all necessary land for right-of-way, whether it be owned by the state or by private parties.”  

Kuiper Law Firm, PLLC specializes in oil and gas issues; if you have any questions about how the information in this article may apply to you or your operations, do not hesitate to contact us.