Oil and Gas Update

Sierra Club Links Up with Libertarian Landowners in Continued Opposition to Gas Development

September 7, 2017

By: Robert G. McLusky and Matthew S. Tyree

Opponents of natural gas development do not have the resources to challenge individual well permits in the Marcellus and related shale gas basins. Instead, they understand that the future of the industry depends on assembling the rights to draw gas from fractionated ownership and on the ability to attract higher prices by building transmission pipelines to carry the gas to new markets.  So, the Sierra Club and its various local and regional partners have focused their efforts on joining forces with local landowners to oppose both pipeline permits and legislative efforts to allow development of fractionated ownership interests in the gas.

That opposition, however, has required those groups to develop new theories and tools because transmission lines are regulated first of all by the Federal Energy Regulatory Commission (“FERC”) under the Natural Gas Act (“NGA”). Under the NGA, transmission lines require a certificate of public need and convenience from FERC, a process that takes considerable time and money.  But once obtaining a certificate, gas pipelines may exercise the right of eminent domain both to gain property access and to construct pipelines.  And, even though pipelines must comply with environmental laws, the NGA restricts the rights of third parties to use state administrative remedies to challenge many of their permits.  A previous article can be seen here.   

Instead, the NGA grants exclusive jurisdiction to Federal Circuit Courts of Appeal for judicial review of determinations made by state agencies “acting pursuant to Federal law” on approvals “required under Federal law” with respect to applicable gas infrastructure. 15 U.S.C. § 717r(d)(1) (“Section 19(d)(1)).  Challenges to FERC certificates must also be filed either in the D.C. Circuit Court or in the Circuit where the natural gas company is located or does business, where FERC is afforded great deference in its decision making process.  15 U.S.C. § 717r(b). 

In response, the Sierra Club has sought to exploit several other perceived vulnerabilities. First, to conduct the necessary environmental and historic preservation reviews required by NEPA, the Endangered Species Act and the National Historic Preservation Act, pipeline companies need access to properties along the potential route.  Generally, they cannot gain access under the NGA until they have obtained a FERC certificate.  To accelerate that process, pipeline companies have sought to use similar state statutory authorities designed to give “public” projects the right to access private property to gather necessary information to consider impacts on the environment and historic resources.  Challenges to those authorities have focused on whether an  interstate pipeline that does not provide retail service and is therefore unregulated by state utility authorities may nonetheless within a state qualify as a “public” project for the purposes of using state eminent authority.  These challenges have met with mixed success, but generally can only delay a project until a FERC certificate, which also grants a right of access, is granted.  Previous articles on this issue can be seen here and here. 

More recently, a lawsuit filed in federal court in Roanoke, Virginia challenged the constitutionality of the NGA’s grant of eminent domain authority to FERC and its designees. See Orus Ashby Berkley, et al. v. Mountain Valley Pipeline, LLC, et al., Case No. 7:17-cv-00357 (WD. Va.) There, the challengers argue that FERC has allowed gas pipelines to demonstrate that projects are in the public interest (and therefore entitled to use the power of eminent domain) on minimal evidence when the primary purpose of the pipeline is to get the developers’ own supplies to market.

While the eminent domain provision of the NGA provides pipeline developers with great power, its exercise also creates and exposes a source of potential vulnerability. As project developers exercise eminent domain authority in rural areas, they create an odd alliance of libertarian landowners and green-leaning anti-development groups which assert that these projects are an abuse of the eminent domain authority.  While these groups likely have little else in common, on pipeline and gas development issues they represent a potential political force that organizations like the Sierra Club seek to exploit. 

In West Virginia, for example, these forces have, by design or not, pushed back on efforts by state legislators to allow developers to develop fractionated gas resources over the objections of minority reserve owners. See https://www.theet.com/opinion/letters_to_editor/sb-doesn-t-satisfy-royalty-owners-group-s-concerns/article_a66b9d41-c001-5dff-94fa-a09c8722e216.html; http://wvpress.org/breaking-news/property-rights-advocates-try-stop-wv-gas-drilling-bill/.  More recently, groups have sought to use their local leverage to influence Clean Water Act (“CWA”) § 401 certifications required from state environmental agencies.  Section 401 of the CWA requires applicants for federal licenses or permits which may result in a discharge to waters of the United States to obtain a certificate from the states in which discharges will occur that the discharges will comply with state-issued water quality standards. See 33 U.S.C. § 1341(a).  For pipelines, this “section 401 certificate” is typically required for the federal FERC certificates and for CWA § 404 “fill” permits issued by the U.S. Army Corps of Engineers for pipeline stream and wetland crossings. 

In New York, a gas-rich state whose executive is opposed to gas development, state authorities denied a § 401 certificate after claiming the Constitution Pipeline did not respond adequately to requests for more information. On August 18, 2017, the Second Circuit Court of Appeals in New York affirmed that decision.  In West Virginia, the WVDEP approved and issued a § 401 certificate for a pipeline, but the Sierra Club has challenged the certification in the Fourth Circuit Court of Appeals.  There, the Sierra Club argues: 1) WVDEP was required, but failed, to conduct an antidegradation review of potential discharges; 2) WVDEP restricted its review to the water quality effects of stream crossings without adequately examining the potential of upland activities to contribute sediment to streams; and 3) WVDEP failed to consider the effects of blasting and construction in karst (limestone) terrain.

Finally, the Sierra Club recently obtained a victory when a split D.C. Circuit Court of Appeals ruled that FERC must consider the impact of greenhouse gas (GHG) emissions when licensing natural gas pipelines.  The ruling directed FERC to revise the Southeast Market Pipelines Project’s environmental impact statement (EIS) to either estimate the project’s impact on GHG emissions that will result from burning the gas that the pipelines will carry or explain more fully why it could not do so.  The panel held that Congress instructed FERC to consider “the public convenience and necessity” when evaluating interstate pipeline applications which requires FERC to balance public benefits against the adverse effects of the project.  When examining this balance, the panel held that FERC should consider direct and indirect effects that could be harmful to the environment, such as GHG emissions.  This ruling could have broad implications as FERC has previously declined to evaluate these downstream GHG impacts in prior pipeline environmental impact statements.  The Sierra Club will likely use this ruling to challenge FERC’s findings for these pipelines.

This article was authored by Robert G. McLusky and Matthew S. Tyree.