On July 8, 2022, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) issued its decision in City of Oberlin, Ohio v. FERC, a proceeding involving the issue of whether FERC properly granted NEXUS Gas Transmission, LLC (“Nexus”) a certificate of public convenience and necessity to construct and operate a natural gas pipeline that will facilitate exports into Canadian markets (“Project”).  The Court upheld the certificate.

In November 2015, Nexus filed an application to build a new pipeline that will provide up to 1.5 Bcf/day of firm transportation service from supply areas in the Appalachian Basin to consuming markets in Ohio and Michigan, and to the Dawn Hub, where gas is traded across the U.S.-Canadian border.  As part of its application, Nexus secured eight precedent agreements (long-term contracts with shippers) accounting for approximately 60% of the pipeline’s total capacity, two of which are with Canadian companies that will serve customers in Canada.  After FERC granted Nexus the certificate, the City of Oberlin (“Oberlin”) petitioned for review before the D.C. Circuit, challenging FERC’s reliance on the export precedent agreements as evidence of “need” for the pipeline as unjustified and unlawful under Section 7 of the Natural Gas Act (“NGA”).  The Court agreed and remanded the proceeding to FERC.  On remand (“Remand Order”), FERC affirmed its certificate issuance and provided additional explanation as to why its crediting of the export precedent agreements was lawful.

The D.C. Circuit’s July 8 decision rules on Oberlin’s second petition for review, which challenged FERC’s Remand Order.  First, Oberlin argued that the Remand Order was contrary to law because gas bound for export is not in interstate commerce, and thus FERC could not consider exports when evaluating a Section 7 certificate.  Oberlin contended that FERC should have analyzed the Project as an export facility under Section 3 of the NGA if it desired to rely on export agreements in reaching its determination.  Oberlin also claimed FERC’s decision was arbitrary and capricious.

The Court disagreed.  As for Oberlin’s first claim, the Court found that FERC properly analyzed the Project under Section 7.  The Court found that where “gas bound for export is commingled with gas bound for domestic, interstate use,” such commingled gas bound for export “becomes itself interstate gas.”  Thus, the Court determined the export precedent agreements to be in interstate commerce.  Because Section 7 allows FERC to consider all factors that may bear on the public interest, the Court concluded that FERC’s consideration of the export agreements was proper.

The Court also held that FERC reasonably justified its consideration of export agreements because FERC: (1) relied on a congressional determination that exports to free trade nations like Canada are beneficial to the public and thus are per se consistent with the public interest under Section 3; (2) described a series of domestic benefits resulting from increasing the transportation of gas, regardless of where the gas is ultimately going to be consumed; (3) explained that these particular export precedent agreements demonstrated a need for additional transportation capacity to the Dawn Hub, which served domestic interests; and (4) explained that export agreements did not run afoul of the Takings Clause because they “serve a public use.”

Finally, the Court upheld FERC’s alternative explanation that the Project meets the requirements of Section 7 – namely, that the Project will relieve a capacity bottleneck by facilitating shipments from the Appalachian Basin to Midwestern markets.

A copy of the D.C. Circuit’s decision can be found here.