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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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The Supreme Court Case That Could Change Everything For U.S. Pipelines

A Supreme Court hearing began this week that could seal the future fate of gas pipelines across the United States. It could also change the balance of power between federal and state authorities in a way that federal authorities would hardly like. The case involves the proposed PennEast pipeline, a 120-mile, 1-billion-cu-m piece of infrastructure that will take natural gas from the Marcellus shale across Pennsylvania and New Jersey. New Jersey is opposing the pipeline. PennEast and FERC want to use eminent domain to condemn the state and private land they need to build the infrastructure.

On the face of it, it is a simple case—just another pipeline dispute of the sort that has been enjoying growing popularity among environmentalist groups and politicians in the past few years. In this case, the politicians want to stop PennEast from receiving easements for 40 parcels of federal land. The only way for PennEast to receive these easements, then, is to sue New Jersey. What makes this case different is that its outcome could have major implications for the industry.

As Forbes’ Christopher Hellman explained in an article from earlier this week, the argument of the New Jersey political pipeline opponents is that under the 11th Amendment to the Constitution, states have sovereign immunity against lawsuits brought against them by private parties such as companies. In other words, PennEast simply has no right, under the Constitution of the United States, to sue New Jersey’s politicians on the pipeline issue.

A counter-argument, used by a district court in 2018 to rule in favor of the natural gas project, is that PennEast is not acting on its own with its plans to carry 1 billion cubic meters of natural gas across two states. It is acting, the court ruled, under the auspices of a government authority: the Federal Energy Regulatory Commission.

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Forbes’ Hellman notes this was not a first, either: since the passing of the Natural Gas Act in 1938, FERC has on more than one occasion delegated its powers to invoke eminent domain to energy companies. From PennEast’s perspective, then, since federal power supersedes state power and since FERC has approved the New Jersey pipeline, it has every right to sue the state for that land.

New Jersey appealed the district court ruling, and the appeals court found in its favor. It said that the state had sovereign immunity against lawsuits brought against it by private entities such as PennEast, noting that the power to invoke eminent domain as delegated to it by FERC was a completely different matter from its right to sue a state.

“Thus, the federal government’s ability to condemn State land … is, in fact, the function of two separate powers: the government’s eminent domain power and its exemption from Eleventh Amendment immunity,” the U.S. Court of Appeals for the 3rd Circuit said in its decision. “A delegation of the former must not be confused for, or conflated with, a delegation of the latter.”

And this is what makes this case so fascinating and so important for the industry. If the Supreme Court sides with PennEast, it would mean that the power to invoke eminent domain supersedes states’ sovereign immunity. But if it sides with New Jersey, it would be very bad news for energy companies because it would mean that pipeline projects—federally approved projects, no less—will be banned left and right on the grounds of sovereign immunity from lawsuits seeking to clear the way for eminent domain.

In truth, New Jersey has conceded in its brief to the Supreme Court that the federal government has the constitutional power to seize state property such as land. However, it has been argued that the federal government does not have the right to delegate that power to private parties. According to PennEast, however, this is not true.

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“It was well-established at the founding that the sovereign eminent-domain authority was delegable. Thus, conceding federal eminent-domain power but contesting its delegability is not a valid option,” the company said in its own brief to SCOTUS.

It is still in the early days. But for now, the Supreme Court appears to be equally open to hearing both sides of the story. According to media reports, some see a 70-percent chance for the court siding with PennEast, citing one Supreme Court Judge, Stephen Breyer, as saying that gas pipelines had a decades-long history and he was wondering whether a ruling in favor of New Jersey would cause disruption to this existing infrastructure.

Chief Justice John Roberts, however, sees things differently, according to a report by the Engineering News-Record. According to him, based on a previous SCOTUS ruling that corporations are people, New Jersey’s argument that it has sovereign immunity from private party lawsuits has a solid standing: PennEast is registered in Delaware and the 11th Amendment, on which New Jersey’s argument hinges, says that states cannot be sued by citizens of other states.

Things will only get more interesting as court hearings progress. The ruling is expected in mid-summer.

Charles Kennedy for Oilprice.com

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