Tom Shepstone on PennEast
Shepstone Management Company, Inc.

PennEast

PennEast

The PennEast case over whether New Jersey can arbitrarily stand in the way of interstate pipelines has been decided by the Supremes and common sense won the day.

The Supremes have ruled. PennEast won. That’s the only simple thing about this case and the way it was decided. The court split five to four with justices aligning along completely non-ideological lines, illustrating what a mess New Jersey made of things by injecting politics into what should have been precisely the opposite. I received numerous observations from readers and others, some arguing it was a big win over wacko enviros, others suggesting state sovereignty was the loser and still others crowing about the defeat of the Federal government. Let me observe all this is proves but one thing; the PennEast case was the exception that proved the rule.

Yes, the PennEast case was an exception and that’s why judges (and observers across the board) came down to earth in some many different places on it. It was such a case for several reasons:

• The legal principle the state sought to exploit—that of state sovereignty—was but an excuse to frustrate the abilities of resident of other states to enjoy the benefits of interstate commerce. If New Jersey had one iota of true respect and concern for  state sovereignty, it wouldn’t be voting impose a plainly illegal DRBC fracking on residents of of Pennsylvania within the watershed who had a right to suppose they’d be treated the same way as other Pennsylvania residents due to the Commonwealth’s sovereignty.
• New Jersey’s position was 100% political, a caving to gentry class special interests represented by the New Jersey Conservation Foundation (cited twice in the case for no apparent reason), with absolutely no regard to needs, policies or jurisprudence. New Jersey’s action wasn’t merely a matter “bad behavior” toward others, but a direct attack on the authority of the Feds to regulate interstate commerce and provide for critical infrastructure required by residents of multiple states.
• New Jersey’s interests in property were not, for the most part, fee simple but, rather, limited to negative rights to restrict the development of farmland that would have largely been unaffected by the pipeline. It isn’t about seizing state land in these instances or just compensation as the land involved doesn’t even belong to the state and the negative rights of New Jersey to prevent farmland from being developed for housing will be neither harmed (as one can farm over pipelines), nor be of such marketable value to the State of New Jersey as to require a dime of compensation.

The Supremes on both sides of the PennEast decision addressed the first point with a pile of words, theories and supposed precedents to twist sovereignty into something unrecognizable. They completely ignored the other two points, which were legally relevant in my humble lay opinion. The majority did get this much correct, though:

This case involves one of the ways the federal eminent domain power can be exercised: through legal proceedings initiated by private delegatees against state-owned property. Specifically, we are asked to decide whether the Federal Government can constitutionally confer on pipeline companies the authority to condemn necessary rights-of- way in which a State has an interest. We hold that it can.

Although 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. That power carries with it the ability to condemn property in court. Because the Natural Gas Act delegates the federal eminent domain power to private parties, those parties can initiate condemnation proceedings, including against state-owned property.

Natural gas has been a part of the Nation’s energy supply since at least the 1820s, when an “enterprising gunsmith” named William Aaron Hart developed a natural gas well near Fredonia, New York… Initially, difficulties in transporting natural gas limited its distribution, as the available pipeline technology did not allow producers to reach the sprawling American markets… Over the following century, however, that technology slowly improved. In 1891, one of the first interstate pipelines—albeit a rudimentary and inefficient one—was built to carry natural gas from central Indiana to Chicago. And in the 1920s, development began in earnest on the country’s pipeline infrastructure…

In 1938 Congress passed the Natural Gas Act… to regulate the transportation and sale of natural gas in interstate commerce. Congress vested the Federal Power Commission (now the Federal Energy Regulatory Commission) with the authority to administer the NGA, including by approving the construction and extension of interstate pipelines. The NGA provides that in order to build an interstate pipeline, a natural gas company must obtain from FERC a certificate reflecting that such construction “is or will be required by the present or future public convenience and necessity.” …The NGA also provides that, before issuing a certificate of public convenience and necessity, FERC “shall set the matter for hearing and shall give such reasonable notice of the hearing thereon to all interested persons.”

…As originally enacted, the NGA did not identify a mechanism for certificate holders to secure property rights necessary to build pipelines. Natural gas companies were instead left to rely on state eminent domain procedures, which were frequently made unavailable to them. In some States, the eminent domain power could be exercised only if the operation of a pipeline would benefit residents… In others, statutory and constitutional provisions denied state eminent domain power to corporations from other States… The result was that certificate holders often had only an illusory right to build.

Congress acted to remedy this defect. In 1947, it amended the NGA to authorize certificate holders to exercise the federal eminent domain power…:

“When any holder of a certificate of public convenience and necessity cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for, the necessary right-of-way to construct, operate, and maintain a pipe line or pipe lines for the transportation of natural gas … , it may acquire the same by the exercise of the right of eminent domain in the district court of the United States for the district in which such property may be located, or in the State courts.”

By enabling FERC to vest natural gas companies with the federal eminent domain power, the 1947 amendment ensured that certificates of public convenience and necessity could be given effect…

Since its inception, the Federal Government has wielded the power of eminent domain, and it has delegated that power to private parties. We have observed and approved of that practice. The eminent domain power may be exercised—whether by the Government or its delegatees—within state boundaries, including against state property. We have also stated, as a general matter, that “the United States may take property pursuant to its power of eminent domain in one of two ways: it can enter into physical possession of property without authority of a court order; or it can institute condemnation proceedings under various Acts of Congress providing authority for such takings.”

…As described above, a natural gas company must obtain a certificate of public convenience and necessity from FERC in order to build a pipeline. Once the certificate is obtained, if the company “cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for, the necessary right-of-way” to build the pipeline, then the company “may acquire the same by the exercise of the right of eminent domain.” …This delegation is categorical. No one disputes that §717f(h) was passed specifically to solve the problem of States impeding interstate pipeline development by withholding access to their own eminent domain procedures… And it was understood both at the time the provision was enacted and over the following decades that States’ property interests would be subject to condemnation.

This footnote is also illustrative:

In addition, all agree that Congress could authorize FERC itself to condemn the exact same property interests, pursuant to the exact same certificate of public convenience and necessity, and then transfer those interests to PennEast following a legal proceeding in which the Government would presumably act in concert with PennEast…

Thank God for this modicum of common sense. The Supremes got it correct on PennEast but how easier it could have been. Truly, this case was the exception that proved the rule!