United States: Natural Gas Infrastructure Opponents Appeal Loss In Their Campaign To Invalidate Federal Energy Regulatory Commission's Processes

Despite a series of lopsided losses, natural gas infrastructure opponents continue to probe the Federal Energy Regulatory Commission (FERC) and its infrastructure approval processes for systemic weaknesses. At the end of March, the United States District Court for the District of Columbia dismissed a complaint filed by the Delaware Riverkeeper Network (DRN) against FERC, rejecting DRN's claim that FERC is inherently and unconstitutionally biased in assessing and approving pipeline projects. Delaware Riverkeeper Network v. FERC, — F. Supp. 3d —, No. 16-416 (D.D.C. March 22, 2017).

Although DRN's action only directly involves the FERC approval of the proposed 120‑mile‑long PennEast natural gas pipeline project (PennEast Pipeline), which would run through Pennsylvania and New Jersey, if successful, DRN's action would undermine the process used by FERC to review every pipeline and storage project subject to the Natural Gas Act.

DRN is a nonprofit organization, with over 16,000 members, that is active in regulatory proceedings that potentially impact the Delaware River and its associated watershed, tributaries and habitats, located in New Jersey, New York, Pennsylvania and Delaware.

After the developers of the PennEast Pipeline initially applied to FERC for a certificate of public convenience and necessity to allow them to construct the new pipeline, DRN filed a motion to intervene in the FERC review process. DRN then brought suit before the FERC review process was completed, alleging deficiencies in the process.

DRN argued that FERC's process is structurally biased because (1) FERC charges regulated natural gas companies fees covering the agency's operating costs; (2) FERC commissioners may be removed only for cause; and (3) FERC "is insulated from Congressional budgetary oversight." DRN claims that this bias is tantamount to a deprivation of due process rights guaranteed to all U.S. citizens under the Fifth Amendment to the U.S. Constitution.

The nature of this attack on FERC's consideration of the PennEast Pipeline application is of particular interest to natural gas infrastructure stakeholders (e.g., natural gas producers, natural gas marketers and transporters, natural gas infrastructure developers and operators, and natural gas consumers) because, rather than involving a claim of a particular error by FERC in executing its process or in reaching conclusions, DRN challenges the generic process employed by FERC for all natural gas infrastructure permitting. Thus, a win by DRN would require a fundamental change in the underlying FERC review process.

Two other noteworthy aspects of DRN's suit are (1) DRN's reliance on sensationalist concerns for bodily harm of its members living within "the blast radius" of a pipeline, rather than less attention‑grabbing claims of damage to the environment; and (2) the preemptory nature of the attack, which was launched without waiting for FERC to make a determination on the application. Regarding this latter point, energy infrastructure opponents have been seeking to stretch out the project approval process for many projects, perhaps hoping that the increased cost to developers and changing market conditions over time could kill projects, even if substantive law could not. Here, the use of an interlocutory appeal allows DRN to stretch out the process before a decision is rendered, thereby preventing the developer from proceeding with the project during the pendency of the appeal. In contrast, an appeal made after FERC had rendered an initial approval would have allowed the developer to proceed at its own risk during the appeal period. Historically, developers generally have done just that, reducing the effectiveness of the opposition's tactics.   

After determining that DRN did have proper standing in the suit (which was also a matter of dispute), the court rejected DRN's claim and granted FERC's motion for summary judgment. The court found that there is no inherent structural bias or appearance of structural bias in the FERC approval process "for the basic reason that approval of pipeline projects does not increase FERC's budget."

The court also denied DRN's claims of a procedural due process violation because it failed to articulate a protected liberty or property interest at stake that would be affected by the alleged bias. Although DRN asserted that Article I, section 27 of the Pennsylvania Constitution creates a property right in the environment that must be afforded due process protection in accordance with the Fifth Amendment to the U.S. Constitution, the court expressly rejected this argument. In doing so, the court noted that "it would be untenable for every citizen of Pennsylvania to have a federal due process right at stake any time the state takes action that could impact the environment." The court held that such environmental concerns and the enjoyment of wildlife do not qualify as "liberty interests" within the scope of the Fifth Amendment's due process clause.

Further, the court held that DRN had not plausibly pleaded that FERC's funding structure results in bias. Congress (and not FERC or the fees charged by FERC) determines FERC's budget. As such, FERC's budget has no relationship to the number of approved pipelines or the quantity of gas being transported by such pipelines. In addition, the court concluded that it is not plausible that FERC's budget would "dry up" if FERC stopped approving pipeline projects.

Although the court treated this as an open-and-shut case, on April 20, 2017, DRN filed a notice of appeal to the United States Court of Appeals for the District of Columbia Circuit. While DRN's chances of prevailing in this instance seem negligible, natural gas industry stakeholders should note that this case is part of a broader and persistent pattern of attack on natural gas production, transportation and export—a trend that is worth monitoring. Further, opponents continue to hone their attacks to maximize their effectiveness, even when the law and facts are not on their side. In some cases, individual action by stakeholders may be warranted to protect FERC's existing, thorough, but fair, processes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.