City of Oberlin, Ohio v. FERC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 6, 2019 Decided September 6, 2019

No. 18-1248

CITY OF OBERLIN, OHIO,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

NEXUS GAS TRANSMISSION, LLC,

INTERVENOR

Consolidated with 18-1261

On Petitions for Review of Orders of

the Federal Energy Regulatory Commission

Carolyn Elefant argued the cause for petitioners. With her

on the briefs were Aaron Ridenbaugh and David A. Mucklow.

Carol J. Banta, Senior Attorney, Federal Energy

Regulatory Commission, argued the cause for respondent.

With her on the brief were James P. Danly, General Counsel,

and Robert H. Solomon, Solicitor.

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David A. Super argued the cause for intervenor. With him

on the brief were Kevin A. Ewing and Britt Cass Steckman.

Before: ROGERS, SRINIVASAN, and WILKINS, Circuit

Judges.

Opinion for the Court filed by Circuit Judge WILKINS.

Concurring Opinion filed by Circuit Judge ROGERS.

WILKINS, Circuit Judge: In reviewing an agency’s

justifications for its actions, principles of administrative law

demand, sensibly, that we strike a balance. On the one hand,

we must not micromanage. Agencies are the experts and

requiring full exposition at every turn would impede their

ability to carry out their specialized statutory duties. On the

other hand, we must insist on reasoned justifications.

The instant matter asks us, once again, to perform this

balancing act. Petitioners are the City of Oberlin, Ohio, and the

Coalition to Reroute Nexus, an organization of landowners.

They ask us to vacate the Federal Energy Regulatory

Commission’s order authorizing Nexus Gas Transmission,

LLC, to construct and operate an interstate natural gas pipeline

and exercise the right of eminent domain to acquire any

necessary rights-of-way. Petitioners also ask us to vacate the

Commission’s order denying their requests for rehearing. In

short, Petitioners complain that the Commission’s orders

allowed the pipeline to transect their properties, to their

properties’ detriment, and gave Nexus the right to condemn

certain easements over their objections.

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Petitioners raise many arguments, the vast majority of

which we reject. We agree with them, however, that the

Commission failed to adequately justify its determination that

it is lawful to credit Nexus’s contracts with foreign shippers

serving foreign customers as evidence of market demand for

the interstate pipeline. Accordingly, we remand without

vacatur to the Commission for further explanation of this

determination.

I.

The Natural Gas Act, 52 Stat. 821 (1938) (codified as

amended at 15 U.S.C. §§ 717-717z), vests authority in the

Commission to regulate the transportation and sale of natural

gas in interstate commerce. In passing it, Congress had two

principal aims: “encourag[ing] the orderly development of

plentiful supplies of . . . natural gas at reasonable prices,”

Minisink Residents for Envtl. Pres. & Safety v. FERC, 762 F.3d

97, 101 (D.C. Cir. 2014) (quoting NAACP v. Fed. Power

Comm’n, 425 U.S. 662, 669-70 (1976)) (alteration in original),

and “protect[ing] consumers against exploitation at the hands

of natural gas companies,” id. (quoting Fed. Power Comm’n v.

Hope Nat. Gas Co., 320 U.S. 591, 610 (1944)) (alteration in

original).

Section 7 of the Act requires an entity seeking to construct

or extend an interstate pipeline for the transportation of natural

gas to obtain from the Commission a “certificate of public

convenience and necessity.” 15 U.S.C. § 717f(c)(1)(A). In a

policy statement, the Commission set forth the criteria it

considers in reviewing an application for a Section 7 certificate.

Certification of New Interstate Nat. Gas Pipeline Facilities, 88

FERC ¶ 61,227 (Sept. 15, 1999), clarified, 90 FERC ¶ 61,128

(Feb. 9, 2000), further clarified, 92 FERC ¶ 61,094 (July 28,

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2000) (“Certificate Policy Statement”). First, an applicant must

demonstrate that it is “prepared to develop the project without

relying on subsidization by the sponsor’s existing customers.”

88 FERC at 61,750. If the applicant makes this showing, the

Commission will issue a certificate of public convenience and

necessity only if a project’s public benefits (such as meeting

unserved market demand) outweigh its adverse effects (such as

a deleterious environmental impact on the surrounding

community). 90 FERC at 61,396. If the Commission issues a

Section 7 certificate to an applicant, the Act confers on the

certificate holder the right to “exercise . . . eminent domain” to

acquire any land necessary to the project’s completion. 15

U.S.C. § 717f(h).

As part of the Section 7 certificating process, before

approving an interstate gas pipeline the Commission must

complete an environmental review of the proposed project

under the National Environmental Policy Act (“NEPA”), 42

U.S.C. § 4321 et seq. Specifically, for federal actions of

requisite significance (including the issuance of a Section 7

certificate), NEPA requires an agency to prepare an

Environmental Impact Statement, § 4332(C), in which the

agency must “identify the reasonable alternatives to the

contemplated action and . . . . look hard at the environmental

effects of [its] decision,” including a project’s impact on public

safety. Corridor H Alts., Inc. v. Slater, 166 F.3d 368, 374 (D.C.

Cir. 1999) (citation omitted).

Lastly, we note that the Commission has limited authority

to regulate the import and export of natural gas under Section

3 of the Act, 15 U.S.C. § 717b. See generally EarthReports,

Inc. v. FERC, 828 F.3d 949, 952-53 (D.C. Cir. 2016). Section

3 provides that no person shall import or export natural gas

“without first having secured an order of the Commission

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authorizing it to do so,” and it instructs that the Commission

shall issue such an order unless its finds that the import or

export “will not be consistent with the public interest.” 15

U.S.C. § 717b(a). As the Commission has explained, however,

Congress transferred Section 3’s regulatory function to the

Secretary of Energy. See Rover Pipeline, LLC, 158 FERC ¶

61,109, ¶ 49 n.43 (Feb. 2, 2017) (citing 42 U.S.C. § 7151(b)).

Subsequently, the Secretary delegated back to the Commission

the narrow authority to approve or disapprove the construction

and siting of facilities where natural gas will be imported or

exported. Id. (citing U.S. Dep’t of Energy, Delegation Order

No. 00-004.00A, § 1.21.A (eff. May 16, 2006)). But the

Secretary retains exclusive authority to approve or disapprove

the import and export of natural gas. Id.

II.

On November 20, 2015, Nexus sought from the

Commission authorization under Section 7 to build and operate

approximately 257 miles of a new natural gas pipeline to

transport 1.5 million dekatherms per day (“dth/day”) of

Appalachian Basin shale gas to consuming markets in northern

Ohio, southeastern Michigan, and Ontario, Canada. The

pipeline begins and ends in the United States; it extends from

Hanover Township in Columbiana County, Ohio, to Ypsilanti

Township in Washtenaw County, Michigan. In marketing the

pipeline from 2012 through 2015, Nexus entered into precedent

agreements – i.e., long-term contracts – with eight different

entities, for 885,000 dth/day, or 59%, of the pipeline’s 1.5

million dth/day capacity. Of the eight entities Nexus contracted

with, four are affiliates of the pipeline’s sponsors, and two are

“Canadian companies serving customers in Canada.” Resp’t’s

Br. 28 (citing J.A. 1228). Nexus’s precedent agreements with

the Canadian shippers are for a total of 260,000 dth/day. Id.

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On August 25, 2017, the Commission issued an order

granting Nexus a Section 7 certificate of public convenience

and necessity. See Nexus Gas Transmission, LLC, 160 FERC ¶

61,022 (Aug. 25, 2017); J.A. 1036-123. And on July 25, 2018,

the Commission issued an order denying Petitioners’ requests

for rehearing. See Nexus Gas Transmission, LLC, 164 FERC ¶

61,054 (July 25, 2018); J.A. 1206-89. In its orders, the

Commission made three determinations that are especially

relevant to Petitioners’ challenges. First, it found that Nexus’s

precedent agreements were “the best evidence” that the

pipeline served unmet market demand. Id. at 1218. Second, it

approved Nexus’s proposed 14% return on equity, subject to

the condition that Nexus design its initial customer rate based

on a hypothetical capital structure of 50% equity and 50% debt.

Id. at 1233. Third, it found that the pipeline does not “represent

a significant safety risk to the public.” Id. at 1259.

On October 2, 2017 (i.e., after the Commission issued

Nexus a Section 7 certificate but before it denied Petitioners’

requests for rehearing), Nexus filed a condemnation action,

pursuant to Section 7, see 15 U.S.C. § 717f(h), against

Petitioners in the Northern District of Ohio. On December 28,

2017, the district court found that Nexus had the right to

exercise eminent domain to condemn certain easements over

Petitioners’ properties. See Nexus Gas Transmission, LLC v.

City of Green, No. 5:17-cv-2062, 2017 WL 6624511, at *3

(N.D. Ohio Dec. 28, 2017), appeal dismissed, 2018 WL

2072616 (6th Cir. Feb. 9, 2018). Shortly thereafter, Nexus

exercised that right. See Pet’rs’ Br., Standing Addendum 3.

In September 2018, Petitioners filed the instant matter.

They ask us to vacate the Commission’s order of August 25,

2017, granting Nexus a Section 7 certificate, as well as its order

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of July 25, 2018, denying Petitioners’ requests for rehearing.

On May 6, 2019, we heard oral argument. Thereafter, based on

certain post-argument events, Nexus filed a motion to dismiss

for lack of subject matter jurisdiction, which, for reasons

explained below, we denied.

III.

We have jurisdiction over the petitions pursuant to the

Natural Gas Act. See 15 U.S.C. § 717r(b). Under the statute,

any party that is “aggrieved” by an order of the Commission

may petition for review of that order, so long as they first seek

rehearing with the Commission. Id. § 717r(a)-(b). Petitioners

meet these criteria. They sought rehearing of the Commission’s

order granting Nexus a Section 7 certificate, and we have held

that landowners like Petitioners, who are “forced to choose

between selling to a FERC-certified developer and undergoing

eminent domain proceedings,” are “‘aggrieved’ within the

meaning of the Act.” Sierra Club v. FERC, 867 F.3d 1357,

1365 (D.C. Cir. 2017) (citing B&J Oil & Gas v. FERC, 353

F.3d 71, 75 (D.C. Cir. 2004)).

Before proceeding, however, we must also discharge our

“independent duty to ensure that at least one petitioner has

standing under Article III of the Constitution.” Sierra Club,

867 F.3d at 1365 (internal citation omitted). To establish

Article III standing, a petitioner “must have (1) suffered an

injury in fact, (2) that is fairly traceable to the challenged

conduct of the defendant, and (3) that is likely to be redressed

by a favorable judicial decision.” Spokeo, Inc. v. Robbins, 136

S. Ct. 1540, 1547 (2016) (internal citation omitted).

In its motion to dismiss submitted after oral argument,

Nexus argues that Petitioners no longer suffer redressable

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injuries in fact. According to Nexus, this is because, since oral

argument, Petitioners and Nexus executed easement

agreements that settled the issue of compensation for Nexus’s

takings, see Pet’rs’ Response to Motion to Dismiss, Exhibits 2,

6, and thereafter the parties entered into joint notices and

stipulations of dismissal in the condemnation action in the

Northern District of Ohio, see id. Exhibits 3, 7.

The law of our circuit is clear that a landowner is injured

in fact when she is put to the choice of having to either reach

an agreement with a pipeline seeking to access her property or

have her property condemned. See Gunpowder Riverkeeper v.

FERC, 807 F.3d 267, 271-72 (D.C. Cir. 2015) (“[A] landowner

made subject to eminent domain by a decision of the

Commission has been injured in fact because the landowner

will be forced either to sell its property to the pipeline company

or to suffer the property to be taken through eminent domain.”)

(internal citation omitted); see also B&J Oil, 353 F.3d at 75

(“[Petitioner] unquestionably suffers from an injury-in-fact. As

a result of the Commission’s orders, [petitioner] . . . must either

sell its land to [the pipeline] or allow [the pipeline] to take its

property through eminent domain. . . . That [the pipeline]

ultimately will compensate [petitioner] for its property does

nothing to erase [petitioner’s] legally cognizable injury.”).

Accordingly, the fact that the parties reached an agreement as

to compensation for Nexus’s takings does nothing to vitiate

Petitioners’ injuries to their property interests.1 In addition,

Petitioners’ injuries are directly traceable to the Commission’s

orders (because the orders permitted the pipeline to transect

1

We note, too, that the joint stipulations of dismissal that the parties

executed explicitly provide that the dismissal of the claims in the

condemnation action “shall have no application” to Petitioners’

claims in the instant matter. Pet’rs’ Resp. to Mot. to Dismiss 8

(quoting Exs. 3, 7).

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their land and authorized Nexus to condemn it), and if we

vacate those orders Petitioners’ injuries are likely to be

redressed, see Nexus Gas Transmission, LLC, 162 FERC ¶

61,011, at P 7 (2018) (“[T]o the extent that [Nexus] elects to

proceed with construction, it bears the risk that . . . our orders

will be overturned on appeal. If this were to occur, [Nexus]

might not be able to utilize any new facilities and could be

required to remove them or to undertake further remediation.”).

We find, therefore, that Petitioners have Article III standing to

bring the petitions.

IV.

We must set aside a decision of the Commission if it is

arbitrary and capricious or otherwise contrary to law. TNA

Merch. Projects, Inc. v. FERC, 857 F.3d 354, 358 (D.C. Cir.

2017). Accordingly, where an agency’s “explanation is lacking

or inadequate, the court must remand for an adequate

explanation of the agency’s decision and policy.” BP Energy

Co. v. FERC, 828 F.3d 959, 965 (D.C. Cir. 2016) (citing Maher

Terminals LLC v. Fed. Mar. Comm’n, 816 F.3d 888, 892 (D.C.

Cir. 2016)). The Commission’s factual findings are conclusive

“if supported by substantial evidence.” 15 U.S.C. 717r(b).

A.

Petitioners argue that the Commission’s finding that

Nexus’s precedent agreements are the “best evidence” of

project need, see J.A. 1218, is not supported by substantial

evidence. In support of this argument, Petitioners wage a three-

pronged attack.

First, Petitioners assert that the Commission contravened

its Certificate Policy Statement by relying on Nexus’s

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precedent agreements for “a paltry 59 percent of new capacity”

as the best evidence of project need. Pet’rs’ Br. 24-25.

Specifically, Petitioners contend that the policy statement only

allows precedent agreements to serve as “strong evidence of

market demand” when they represent “most of the new

capacity” of the pipeline and that 59% is not “most of the new

capacity.” Id. (citing 88 FERC at 61,749). But that argument is

fundamentally misguided: the Certificate Policy Statement

imposes no bright-line rule about when precedent agreements

may be persuasive evidence of market demand. Instead, it lays

out a flexible inquiry that allows the Commission to consider a

wide variety of evidence to determine the public benefits of the

project. And here, the Commission engaged in that broad-

ranging inquiry reasonably. Although the precedent

agreements represented only 59% of Nexus’s capacity, the

Commission determined that existing pipelines could not

absorb that amount of gas. See J.A. 1050-53, 1219-20. Given

that analysis, the Commission reasonably concluded under the

Certificate Policy Statement that the precedent agreements –

which firmly established that there was more demand for

natural gas in the Nexus pipeline’s delivery region than

existing pipelines could meet – were the best evidence of

project need.

Second, Petitioners assert, Nexus’s precedent agreements

are not meaningful evidence of project need because half of

them are with affiliates of the pipeline’s sponsors. According

to Petitioners, this is problematic because affiliate agreements

“are not necessarily the product of arms-length negotiations.”

Pet’rs’ Br. 25-26. This argument, too, is without merit. The

Commission rationally explained that it fully credited Nexus’s

precedent agreements with affiliates because it found no

evidence of self-dealing (a finding Petitioners do not dispute),

and because Nexus bears the risk for any unsubscribed

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capacity. See J.A. 1125. Moreover, as the Commission

explained, when it ended its policy of requiring pipelines to

demonstrate a specific subscription rate, “it was reducing ‘the

significance of whether the [precedent agreements] are with

affiliated or unaffiliated shippers.’” J.A. 1224 (quoting 88

FERC at 61,748). Consistent with this, this Court has also

recognized that “it is Commission policy to not look behind

precedent or service agreements to make judgments about the

needs of individual shippers.” Myersville Citizens for a Rural

Cmty., Inc., v. FERC, 783 F.3d 1301, 1311 (D.C. Cir. 2015)

(quoting Dominion Transmission, Inc., 141 FERC ¶ 61,1240,

at P 66 (Dec. 12, 2012)); see also Appalachian Voices v. FERC,

No. 17-1271, 2019 WL 847199, at *1 (D.C. Cir. Feb. 19, 2019)

(holding that the Commission “reasonably explained that ‘[a]n

affiliated shipper’s need for new capacity and its obligation to

pay for such service under a binding contract are not lessened

just because it is affiliated with the project sponsor’”) (quoting

Mountain Valley Pipeline, LLC, 161 FERC ¶ 61,043, ¶ 45 (Oct.

13, 2017)) (alteration in original).

Third, Petitioners argue, Nexus’s precedent agreements

are not strong evidence of market demand because a substantial

portion of them are dedicated for export. In Petitioners’ view,

because the Secretary of Energy authorizes exports under

Section 3 of the Act, the Commission may not use precedent

agreements for export “to justify project need under Section 7

[,] which governs certificates for projects in interstate

commerce.” Pet’rs’ Br. 21. Moreover, Petitioners contend,

because Section 7 confers on a certificate holder the right to

exercise eminent domain, crediting export agreements toward

a Section 7 finding of project need runs afoul of the Takings

Clause, as a private pipeline selling gas to foreign shippers

serving foreign customers does not serve a “public use” within

the meaning of the Fifth Amendment. Id. at 36 (quoting U.S.

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CONST. amend. V (“[P]rivate property [shall not] be taken for

public use, without just compensation.”)).

This argument raises legitimate questions, which the

Commission has heretofore failed to adequately answer. On the

record before us, two of Nexus’s precedent agreements for a

total of 260,000 dth/day are, as the Commission concedes, with

“Canadian companies serving customers in Canada.” Resp’t’s

Br. 12 (citing J.A. 1228). If the Commission excluded these

agreements from its Section 7 analysis of project need, Nexus

would have precedent agreements for only 625,000 dth/day, or

approximately 41.6% of its 1.5 million dth/day capacity. And

because the Commission never considered whether the public

benefits of the Nexus pipeline would outweigh its adverse

impacts if it were only subscribed for 625,000 dth/day (a

substantial decrease from the analyzed 805,000 dth/day), we

may affirm its finding of public convenience and necessity only

if the Commission’s inclusion of the export precedent

agreements in its analysis was proper.

But the Commission never explained why it is lawful to

credit demand for export capacity in issuing a Section 7

certificate to an interstate pipeline. In response to Petitioners’

argument that it is not, the Commission simply recited its

findings that: (1) a substantial amount of the pipeline’s

subscribed capacity is for domestic consumption; (2) all

shipper commitments have secondary delivery rights within the

United States; and (3) Nexus’s application listed eleven

interconnections with potential customers. J.A. 1228-29. But

these facts do not explain why it is lawful for the Commission

to predicate a Section 7 finding of project need on precedent

agreements with foreign shippers serving foreign customers.

Section 7 states that the Commission may issue a certificate of

public convenience and necessity for “the transportation in

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interstate commerce,” § 717f(c)(2) (emphasis added), and we

have explicitly refused to “interpret ‘interstate commerce’”

within the context of the Act “so as to include foreign

commerce,” Border Pipe Line Co. v. Fed. Power Comm’n, 171

F.2d 149, 152 (D.C. Cir. 1948). See also Distrigas Corp. v.

Fed. Power Comm’n, 495 F.2d 1057, 1063 (D.C. Cir. 1974)

(reaffirming Border Pipe Line).

Moreover, in response to Petitioners’ argument that

relying on demand for export in issuing a Section 7 certificate

runs afoul of the Takings Clause, the Commission merely

stated that it has previously addressed this issue and offered

citation to authority. J.A. 1229 (collecting FERC cases). But

just one of the FERC cases the Commission cites addressed the

specific question of whether predicating a Section 7 finding of

project need on precedent agreements for export contravenes

the Takings Clause. See Transcon. Gas Pipe Line Co., 161

FERC ¶ 61,250 (Dec. 6, 2017), at ¶¶ 30-35. Furthermore, in

that single case, the Commission relied on the inadequate

explanation that such a circumstance does not present a

Takings Clause problem because: once the Commission

determines that a pipeline is required by the public convenience

and necessity, Section 7 authorizes the certificate holder to

exercise the right of eminent domain, and “Congress did not

suggest that there was a further test . . . such that certain

certificated pipelines furthered a public use . . . while others did

not.” Id. ¶¶ 31-32. This reasoning begs the unanswered

question of whether – given the fact that Section 7 authorizes

the use of eminent domain – it is lawful for the Commission to

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credit precedent agreements for export toward a finding that a

pipeline is required by the public convenience and necessity.2

When pressed on this issue at oral argument, the

Commission again did not explain why it is lawful to credit

precedent agreements for export in issuing a Section 7

certificate for the construction and operation of an interstate

pipeline. See Oral Arg. 16:45-28:10. Rather, the Commission

repeated that, in approving Nexus’s application, it was

“looking at the benefits to the domestic markets.” Oral Arg.

27:34-39. As we have explained, this statement has no

explanatory value with respect to the question of why it is

lawful for the Commission, as it did here, to predicate a Section

7 finding of need for an interstate pipeline on a pipeline’s

precedent agreements for export. 3

Accordingly, we remand to the Commission for further

explanation of why – under the Act, the Takings Clause, and

2

We acknowledge that, in Transcontinental Gas, in an attempt to

fortify its reasoning, the Commission also “note[d]” that before any

gas is exported, the Department of Energy, pursuant to Section 3 of

the Act, would first “need to find that such exportation is not

inconsistent with the public interest.” Id. at 34 (citing 15 U.S.C. §

717b(a)). True. It is insufficient, however, to simply assume that such

a finding under Section 3, which does not authorize the exercise of

eminent domain, is somehow equivalent to a finding that a given

export constitutes a public use within the meaning of the Takings

Clause.

3

To the extent that Petitioners argue that the Commission can never

lawfully issue a Section 7 certificate where a pipeline has precedent

agreements for export, see Pet’rs’ Br. 33-35, we note that we

disagree. We disagree because a pipeline may clearly be required by

the public convenience and necessity independent of any of its

precedent agreements for export. But, as explained, the Commission

has not made any finding to that effect in this case.

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the precedent of this Court and the Supreme Court – it is lawful

to credit precedent agreements with foreign shippers serving

foreign customers toward a finding that an interstate pipeline is

required by the public convenience and necessity under Section

7 of the Act.

B.

Petitioners also attack the Commission’s approval of the

specific formula that Nexus used to design its initial consumer

rate.

As we had occasion to discuss relatively recently, one of

the Commission’s duties under the Act is to regulate the rates

pipelines charge their customers. See generally Sierra Club,

867 F.3d at 1376-79. As part of a Section 7 proceeding, the

Commission reviews a pipeline’s proposed initial rate and will

approve it if the agency finds that it is in the “public interest.”

Atl. Ref. Co. v. Pub. Serv. Comm’n, 360 U.S. 378, 390-91

(1959). A pipeline’s initial rate remains in place until

permanent “just and reasonable” rates are established pursuant

to ratemaking procedures under Sections 4 and 5 of the Act.

See Mo. Pub. Serv. Comm’n v. FERC, 601 F.3d 581, 583 (D.C.

Cir. 2010) (citing 15 U.S.C. §§ 717c-d).

Nexus sought to design its initial rate based on a 14%

return on equity (“ROE”) and a hypothetical capital structure

of 60% equity and 40% debt. See J.A. 1234; see generally

Sierra Club, 867 F.3d at 1376 (“Like most businesses, a

pipeline company is funded by both equity (i.e., investments

made by shareholders) and debt. A pipeline’s ratio of equity

financing to debt financing is called its ‘capital structure.’”)

(internal citations omitted). The Commission, however, did not

accept Nexus’s proposal. Rather, it approved Nexus’s proposed

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ROE of 14% but only on the condition that Nexus design its

initial rate according to a hypothetical capital structure of 50%

equity and 50% debt. J.A. 1236. In other words, in forcing

Nexus to design its initial rate according to a 50:50, as opposed

to 60:40, equity to debt ratio, the Commission “require[d] the

pipeline to charge a lower rate than it had originally requested.”

Sierra Club, 867 F.3d at 1378.

But Petitioners are not satisfied with the Commission’s

effort to reign in Nexus’s initial rate. They argue that a 14%

ROE is excessive, even assuming a 50:50 equity to debt ratio,

as compared to the returns on other utility investments that state

commissions have approved. See Pet’rs’ Br. 43 (citing J.A.

1778).4 Moreover, Petitioners contend, the Commission failed

to adequately explain why a 14% ROE and 50:50 equity to debt

ratio is appropriate for the Nexus pipeline specifically.

Petitioners point out that the Commission, in its order issuing

Nexus a Section 7 certificate, supported its approval of this

formula with nothing more than citation to FERC precedents

demonstrating that the Commission has previously approved a

14% ROE and 50:50 equity to debt ratio for new pipelines. Id.

(citing J.A. 1063). Moreover, Petitioners add, in its order

denying Petitioners’ requests for rehearing, the Commission

merely: (1) offered the generic observation that relatively

higher ROE’s are appropriate for new market entrants like

4

In addition, Petitioners raise a half-hearted challenge to the

Commission’s very use of a hypothetical capital structure as a

mechanism by which to lower Nexus’s initial rate. As Petitioners

ultimately concede, however, “Sierra Club allows the Commission

to use a hypothetical capital structure to minimize rate impacts.”

Pet’rs’ Br. 45-46 (referring to Sierra Club, 867 F.3d at 1378 (“FERC

is allowed to . . . use a hypothetical capital structure to decrease a

pipeline’s proposed rates, in the interest of consumer protection.”)

(emphasis in original) (internal citation omitted)).

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Nexus because they face greater business risks than their

established counterparts; and (2) noted that Nexus bears the

financial risk for any unsubscribed capacity. Id. at 43-44 (citing

J.A. 1235-36). But nowhere, Petitioners emphasize, has the

Commission explained “why a flat 14 percent return should

apply to all new pipelines irrespective of geographic location,

size and cost and need [sic].” Id. at 43.

In response, the Commission reiterates that its approval of

a 14% ROE and 50:50 equity to debt ratio was appropriate for

the Nexus pipeline because new pipelines are inherently

riskier, and Nexus bears responsibility for any unsubscribed

capacity. Resp’t’s Br. 41-42 (citing J.A. 1235-36).

In Sierra Club, when considering the precise question

before us – i.e., whether the Commission was justified in

approving a 14% ROE based on a 50:50 equity to debt ratio for

a new pipeline on the ground that the Commission had done so

previously for new pipelines – we “confess[ed] to being

skeptical that a bare citation to precedent, derived from another

case and another pipeline, qualifies as the requisite ‘substantial

evidence.’” Sierra Club, 867 F.3d at 1378 (citing N.C. Utils.

Comm’n v. FERC, 42 F.3d 659, 664 (D.C. Cir. 1994) (“[N]aked

citation of prior authority for the use of a hypothetical [capital

structure] under one circumstance does not automatically

justify such in another.”)). Ultimately, however, we did not

reach this issue because we found that petitioner never properly

raised it, having “confin[ed] itself to attacking the use of a

hypothetical capital structure more generally.” Id.

Here, by contrast, Petitioners, in their requests for

rehearing and opening brief, argued explicitly that the

Commission’s bare citation to precedent is inadequate to

support its finding that a 14% ROE based on a 50% equity and

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50% debt capital structure is appropriate for the Nexus

pipeline. See J.A. 1176; Pet’rs’ Br. 43-44. Thus, the issue is

properly before us.

However, after a close examination of the record, we find

that the Commission’s explanation is hardly as bare as the

Petitioners suggest. The Commission did not simply cite its

precedent but applied its “established policy” balancing both

consumer and investor interests to the particular pipeline at

issue, J.A. 1233, and responded to Petitioners’ specific

objections. It explained the nature of initial rates, as distinct

from rates under NGA sections 4 and 5, specifically how

“Congress gave the Commission the discretion in section 7

certificate proceedings to approve initial rates that will ‘hold

the line’ and ‘ensure that the consuming public may be

protected’ while awaiting adjudication of just and reasonable

rates under the more time-consuming ratemaking sections of

the NGA.” J.A. 1233 (quoting Atl. Ref. Co. v. Pub. Serv.

Comm’n of N.Y., 360 U.S. 378, 390 (1950)). It explained the

different risks confronting existing pipelines and the greenfield

pipeline at issue, which faces increased business risks

(regulatory, contractual, and construction) and greater risks of

constructing and servicing new routes because it does not have

an existing revenue base, and why Petitioners’ reliance on state

proceedings was misplaced. J.A. 1234-35. It rejected

Petitioners’ argument that Nexus faced no risk for the

unsubscribed pipeline capacity because “Nexus faces a very

real risk that any unsubscribed capacity will reduce its ability

to meet its revenue requirement.” J.A. 1236. It also explained

that adjusting Nexus’s proposed hypothetical capital structure

reduced the impact of the ROE and thereby “ensures that

Nexus’s rates are on a level playing field with other greenfield

pipelines.” J.A. 1236. It concluded, on the record before it, that

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an ROE of 14% with an increased debt level would “hold the

line.” J.A. 1236.

Notably, the Commission even provided an example of

how, under its policy, an existing pipeline seeking to expand

service would be required to use the ROE underlying its

existing system rates, tending to yield a lower rate in view of

the lower risk involved. J.A. 1234. In the example provided, an

existing pipeline’s ROE was 12.2 % rather than the requested

13.0%. Further, it noted that Nexus would be required to file a

cost and revenue study three years out that would provide data

by which the Commission and interested parties could

determine whether the rates remain just and reasonable. J.A.

1235. It is true that the Commission never discussed another

possible ROE, other than to reject the equity/debt ratio Nexus

initially proposed. See J.A. 1234. But we are ill-equipped to

second guess the Commission’s expert judgment that a 14%

ROE with 50/50 equity/debt capital structure will “hold the

line,” and on this record, we find no basis on which to conclude

the Commission’s explanation in response to Petitioners’

objections is inadequate. See BP Energy Co. v. FERC, 828 F.3d

959, 965 (D.C. Cir. 2016). Nor can we find that the

Commission “entirely failed to consider an important aspect of

the problem, offered an explanation for its decision that runs

counter to the evidence before the agency, or is so implausible

that it could not be ascribed to a difference in view or the

product of agency expertise.” Motor Veh. Mfrs. Ass’n of U.S.

v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

Accordingly, Petitioners’ attack on the Commission’s

approval of the specific formula that Nexus used to design its

initial consumer rate is unsuccessful.

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C.

Finally, Petitioners raise two arguments attacking the

Commission’s finding that the pipeline does not “represent a

significant safety risk to the public.” J.A. 1259. We reject both.

First, Petitioners argue, the Commission impermissibly

delegated its obligations under NEPA to independently review

the pipeline’s potential adverse impacts on public safety.

Specifically, Petitioners contend, within its Environmental

Impact Statement (“EIS”), the Commission over relied on

Nexus’s commitment to comply with safety standards

promulgated by the Pipeline and Hazardous Materials Safety

Administration, a division of the Department of Transportation

(“DOT”).

Petitioners are wrong. As they concede, see Pet’rs’ Br. 50,

DOT has exclusive authority to establish safety standards for

natural gas pipelines, see Memorandum of Understanding

Between DOT and FERC Regarding Natural Gas

Transportation Facilities,

https://www.phmsa.dot.gov/sites/phmsa.dot.gov/files/docs/19

93_DOT_FERC.pdf. And we have held that it is reasonable for

the Commission to reference such standards as a component of

its review of a pipeline’s safety risks, see EarthReports, 828

F.3d at 958, which is exactly what the Commission did here. In

a thorough analysis, see J.A. 1019-43, the Commission

explained in detail how Nexus’s compliance with DOT

standards would address the specific safety concerns that

commenters raised. See, e.g., J.A. 1028 (“The DOT regulations

specified in 49 CFR 192 require that pipeline operators

establish and maintain liaison with appropriate fire, police, and

public officials . . . .”). Moreover, the Commission enumerated

specific actions Nexus committed to take to account for safety

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risks that DOT regulations might not fully address. See, e.g.,

J.A. 1028 (“In addition to the DOT-required surveys described

previously, Nexus . . . would monitor portions of its pipeline

system using a supervisory control and data acquisition

system.”). Accordingly, the Commission fulfilled its duty to

independently consider the pipeline’s safety risks and, in so

doing, it considered DOT regulations in an appropriate fashion.

Second, Petitioners contend, the Commission arbitrarily

failed to consider moving the pipeline away from residences

and buildings. This is not so. As an initial matter, as the

Commission pointed out, see J.A. 1025, DOT regulations do

not require natural gas pipelines to remain a minimum distance

from residences or buildings. DOT has, however, developed a

classification system that grades each segment of a pipeline

based on population density at a given segment’s location, see

49 C.F.R. § 192.5, and subjects “high consequence areas,” i.e.,

pipeline segments close to more densely populated areas, to

stricter safety standards, see id. §§ 192.903, 192.907, 192 App.

E. In accordance with this regulatory scheme, the Commission

accounted for every mile of the Nexus pipeline. See J.A. 1020-

27. Accordingly, although the Commission may not have

considered the pipeline’s proximity to buildings and residences

in precisely the way Petitioners would prefer, Petitioners’

argument that the Commission arbitrarily failed to consider this

issue is unfounded.

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V.

Before concluding, we offer a word regarding our remedy.

“The decision to vacate depends on two factors: the likelihood

that ‘deficiencies’ in an order can be redressed on remand, even

if the agency reaches the same result, and the ‘disruptive

consequences’ of vacatur.” Black Oak Energy, LLC v. FERC,

725 F.3d 230, 244 (D.C. Cir. 2013) (quoting Allied-Signal, Inc.

v. U.S. Nuclear Regulatory Comm’n, 988 F.2d 146, 150-51

(D.C. Cir. 1993)). Accordingly, we remand without vacatur,

because we find it plausible that the Commission will be able

to supply the explanations required, and vacatur of the

Commission’s orders would be quite disruptive, as the Nexus

pipeline is currently operational.

***

For the foregoing reasons we grant in part and deny in part

the petitions for review. We grant the petitions insofar as we

remand without vacatur to the Commission for further

explanation of why it is lawful to credit precedent agreements

for export toward a Section 7 finding that an interstate pipeline

is required by the public convenience and necessity. We deny

the petitions in all other respects.

So ordered.

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ROGERS, Circuit Judge, concurring. This court has

recently reaffirmed its understanding that the Commission acts

lawfully under the Natural Gas Act (“the Act”) in granting a

Section 7 certification of public convenience and necessity

when “much of the [imported] gas will be used for domestic

consumption.” Town of Weymouth v. FERC, 2018 WL

6921213, at *1 (D.C. Cir. Dec. 27, 2018) (unpubl.). This

harkens back to the court’s recognition that “the Commission

has long regarded Section 3’s public interest standard and

Section 7’s public convenience and necessity standard as

substantially equivalent.” Distrigas Corp. v. FERC, 495 F.2d

1057, 1065 (D.C. Cir. 1974) (noting FERC Opinion 613).

There, the court declined to overrule Border Pipe Line Co. v.

FPC, 171 F.2d 149, 150–51 (D.C. Cir. 1948), where the court

held the power commission lacked jurisdiction under Section 7

to regulate a company located in Texas that transported gas

exclusively to Mexico, drawing on the historical distinction

between “interstate commerce” and “exports.” In Distrigas,

495 F.2d at 1063, the court “agree[d] with the Commission that

neither the language nor the legislative history of the Act’s

interstate commerce definition unambiguously establishes the

correctness of the Border construction.” It stated that it “would

not hesitate” to overrule Border Pipe Line if it were convinced

that that case’s interpretation of Section 7 “would inevitably

place imports of natural gas into the sort of regulatory gap” that

the Act was designed to fill. Id. at 1063–64. But the court

concluded there was no regulatory gap over imported gas

entering an existing pipeline because FERC had “plenary and

elastic” authority under Section 3 to place conditions —

including conditions substantively equivalent to Section 7

certification requirements — on imported gas. Id. at 1064.

In neither Distrigas nor Border Pipe Line was the issue

precisely the same as in the instant case, namely, whether the

Commission has authority under Section 7 to consider in

certification proceedings precedent agreements with a foreign

shipper in evaluating market need for a new pipeline to be

2

located exclusively within the United States. Whether, absent

congressional action, a similar workaround as the court applied

in Distrigas, or other approach for concluding the Commission

had jurisdiction to consider two Canadian shippers’ precedent

agreements where a significant amount of that gas was

expected to be used domestically, would be possible remains

to be seen. Here, the Commission’s findings regarding the

need for and the nature of the NEXUS pipeline are supported

by substantial evidence in the record considered as a whole,

and the Commission reasonably explained that petitioners

mischaracterized the extent to which the project may be used

to export gas. See Rehg Order ¶ 45; Resp’t’s Br. 28. So

understood, it appears on this record that the question on

remand is whether the Commission’s “substantial equivalence”

interpretation is contrary to the Act. I join the remand to allow

the Commission the opportunity to provide an explanation of

its authority to rely in Section 7 certification proceedings on

precedent agreements with foreign shippers serving foreign as

well as domestic customers.