Amicus Curiae Brief — PennEast Pipeline Company, LLC, Petitioner v. New Jersey, et al.

No. 19-1039

In the

Supreme Court of the United States

PENNEAST PIPELINE COMPANY, LLC,

Petitioner,

v.

NEW JERSEY ET AL.,

Respondents.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Third Circuit

BRIEF OF THE INDUSTRIAL ENERGY

CONSUMERS OF AMERICA AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

KENNETH VON SCHAUMBURG

Counsel of Record

DANIEL R. SIMON

OMAR BUSTAMI

CLARK HILL PLC

1001 Pennsylvania Ave., NW

Suite 1300 South

Washington, DC 20004

kvonschaumburg@clarkhill.com

(202) 772-0904

i

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................. i

TABLE OF AUTHORITIES...................................... iii

INTEREST OF AMICUS CURIAE ............................1

SUMMARY OF ARGUMENT .....................................4

ARGUMENT ...............................................................5

I.

The Decision Below Would Create Barriers to

Energy Infrastructure Development and to

Natural Gas Supplies Throughout the Nation.

...........................................................................5

II. Pipeline Development Barriers Harm IECA’s

Members and the National Economy .............. 8

A.

Manufacturers Need More Pipeline Capacity

to Access Natural Gas Supplies. ..................8

B.

Manufacturers Do Not Have a Comparable

Alternative to Natural Gas. ....................... 12

1.

Manufacturers have no reliable and

environmentally acceptable alternative to

natural gas ............................................... 12

2.

Electricity does not provide an economic

alternative

to

natural

gas

for

manufacturers .......................................... 14

ii

C.

Without Increased Pipeline Capacity, Some

IECA Companies May Need to Move

Production and/or Investments to Other

Countries With Regulatory Certainty and

Better Access to an Economical Natural Gas

Supply; Regulatory Certainty is Needed to

Encourage Reshoring ................................ 16

CONCLUSION .......................................................... 18

iii

TABLE OF AUTHORITIES

Cases

E. Tenn. Nat. Gas Co. v. Sage,

361 F.3d 808 (4th Cir. 2004) ...................................8

El Paso Nat. Gas Co., L.L.C.,

169 FERC ¶ 61,133, Dkt. No. CP18-332-000 (2019)

..................................................................................9

Integration of Variable Energy Resources,

Order No. 764, 139 FERC ¶ 61,246, Dkt. No.

RM10-11-000 (2012) .............................................. 13

NAACP v. Fed. Power Comm’n,

425 U.S. 662 (1976).............................................. 4, 8

PennEast Pipeline Company, LLC,

Order on Petition for Declaratory Order, 170

FERC ¶ 61,064, Dkt. No. RP20-41-000 (January

30, 2020) ....................................................... 5, 6, 7, 8

Statutes

15 U.S.C. §717f (2018) ......................................... 2, 3, 7

1

INTEREST OF AMICUS CURIAE1

The Industrial Energy Consumers of America

(“IECA”) is a nonpartisan association of leading

manufacturing companies with $1.0 trillion in annual

sales, over 3,700 facilities nationwide, and more than

1.7 million employees.

IECA is an organization created to promote the

interests of manufacturing companies through

advocacy and collaboration for which the availability,

use and cost of energy, power, or feedstock play a

significant role in IECA members’ ability to compete

in domestic and world markets.

IECA’s membership represents a diverse set of

industries on which the national economy depends:

chemicals, plastics, steel, iron ore, aluminum, paper,

food processing, fertilizer, insulation, glass, industrial

gases, pharmaceutical, building products, automotive,

brewing, independent oil refining, and cement.

These industries are one-hundred percent

dependent upon a robust interstate pipeline system to

supply their energy needs. IECA member industries

directly purchase approximately twenty-two percent

of U.S. natural gas production shipped via pipeline.

The products that IECA members produce are used by

1 No counsel for a party authored this brief in whole or part, nor

did any person or entity, other than amici or their counsel, make

a monetary contribution to the preparation or submission of this

brief. The parties received notice at least 10 days before the

deadline and have given express consent to this brief.

2

every sector of the economy and pertain to all aspects

of day-to-day life.

Today, there are clear signs that the natural

gas pipeline infrastructure is near maximum

capacity.

The continued viability of the

manufacturing, power, and home heating sectors and

liquified natural gas exports depends upon the ability

to quickly respond to the dramatic increases in

demand each of these sectors is placing on the pipeline

network.

The United States Court of Appeals for the

Third Circuit’s decision2―that private parties may not

exercise the federal eminent domain power delegated

by §717f(h) of the Natural Gas Act (“NGA”) to secure

rights-of-way over property owned by a state or even

over property in which a state merely holds a

recreational or conservation easement―is wrong and

inhibits or denies the ability of IECA member

companies to produce and contribute to U.S. economic

growth and to create high paying middle-class jobs.

The NGA expressly delegates to a gas company

that obtains the requisite approvals the “right of

eminent domain” to obtain “necessary right[s]-of-way”

to construct, operate, and maintain an interstate

pipeline. 15 U.S.C. §717f(h) (2018).

To exercise eminent domain power, a natural

gas company must obtain a certificate of public

2 In re PennEast Pipeline Co., LLC, 938 F.3d 96 (3d Cir. 2019).

The Third Circuit’s opinion is reproduced at App.1-31.

3

convenience and necessity from the Federal Energy

Regulatory Commission (“FERC”).

Id. §717f(h).

Although the court of appeals acknowledged that

§717f(h) delegates the federal eminent domain power

to such certificate holders, it nevertheless concluded

that §717f(h) cannot be read to “delegate” the federal

government’s (separate) power to “exempt” states

from sovereign immunity under the Eleventh

Amendment, and hence leaves eminent domain power

that cannot be exercised as to state property. App.11,

27.

As explained by the Petitioner, this decision of

the court of appeals “invalidates an act of congress out

of a misguided effort to avoid constitutional concerns

that do not exist.” Brief for Petitioner at 19. Nothing

prevents the federal government from delegating its

eminent domain power to certificate holders that have

satisfied FERC review of their proposal to construct

interstate pipelines.

IECA writes to further explain the exceptional

importance of correcting the court of appeals’ error.

The decision below is profoundly disruptive to, and in

fact would inhibit or deny, the free flow of commerce

on which IECA’s members and the economy are onehundred percent dependent. As the court of appeals

itself stated, its decision “may disrupt how the natural

gas industry” has operated “for the past eighty years.”

App.30.

4

SUMMARY OF ARGUMENT

To say that this case is of immense national

importance is an understatement. The court of

appeals’ decision would disrupt how the natural gas

industry has operated for the past eighty years. The

decision would create barriers for manufacturing

companies that depend on natural gas and gas-fired

electric infrastructure throughout the nation and

would inhibit or deny the supply of energy on which

IECA’s members depend. The decision would

undermine “the principal purpose of . . . [the NGA] to

encourage the orderly development of plentiful

supplies of . . . natural gas at reasonable prices”

NAACP v. Fed. Power Comm’n, 425 U.S. 662, 669-70

(1976).

Contrary to the court of appeals’ claim, there is

no practical work-around to the harm created by its

decision. The court of appeals’ decision would create

barriers to pipeline development that would severely

affect IECA’s members, whose annual sales top one

trillion dollars and who form a major component of the

national economy.

5

ARGUMENT

I.

The Decision Below Would Create Barriers

to Energy Infrastructure Development and

to Natural Gas Supplies Throughout the

Nation.

The court of appeals’ decision would disrupt the

development of energy infrastructure, “allow[ing]

states to nullify the effect of Commission orders

affecting state land—and, apparently, private land in

which the state has an interest—through the simple

expedient of declining to participate in an eminent

domain proceeding brought to effectuate a

Commission certificate.” PennEast Pipeline Co., LLC,

Order on Petition for Declaratory Order, 170 FERC ¶

61,064, Dkt. No. RP20-41-000, ¶58 (January 30, 2020)

(“FERC Order”).

As a result of the court of appeals’ decision,

states would be free to block natural gas

infrastructure projects that cross state lands by

refusing to grant easements for the construction and

operation of the projects on land for which the state

has a possessory interest, regardless of any

Commission finding that a particular project is in the

public interest under the NGA. Id. As FERC

explained:

[T]he court’s interpretation would

permit states to block construction both

on land a state owns (e.g., along or

across all state roads and the bottoms

of navigable water bodies), and on land

6

over which the state asserts some

lesser

property

interests

(e.g.,

conservation easements). If stateowned lands are treated as impassable

barriers for purposes of condemnation,

the circumvention of those barriers, if

possible at all, would require the

condemnation of more private land at

significantly greater cost and with

correspondingly greater environmental

impact. If lands over which a state has

asserted any property interest also

become impassable barriers for

purposes of condemnation, a state

could unilaterally prevent interstate

transportation of an essential energy

commodity through its borders, thus

eviscerating the purpose of NGA

section 7(h).

FERC Order ¶58 n.221. Indeed, New Jersey has

already proposed new legislation for the purpose of

blocking natural gas pipelines. Id. ¶61 n.233. New

Jersey’s actions can and will be replicated in other

states.

Even if pipeline companies find ways to work

around these “impassable barriers,” they may

ultimately be forced to locate their pipelines further

away from the manufacturer end-users the pipelines

are intended to serve, thereby dramatically raising

costs.

Natural gas pipelines are a regulated

monopoly. FERC rate design guarantees a rate

sufficient to recover all of the pipeline company’s

7

approved pipeline costs plus a return on equity. See

“Cost of Service Rate Filings,” Federal Energy

Regulatory

Commission,

https://www.ferc.gov/industries/gas/gen-info/ratefilings.asp. This means all additional work-around

costs of building the pipeline would be passed onto

consumers like IECA’s members, thereby negatively

impacting their costs and competitiveness. Higher

pipeline rates increase both the cost of natural gas

and electricity.

While the court of appeals proposed a “workaround,” whereby FERC would bring the

condemnation action itself, and then somehow

transfer the property or rights-of-way to the

certificate holder, the proposed “work-around” is

entirely impractical. App.31. The Commission has no

statutory authority or mechanism by which to

condemn property and transfer it to certificate

holders. FERC Order ¶58. Congress has not given

the Commission the power to bring eminent domain

proceedings, let alone given it the power to “pay just

compensation” or to “transfer[] the property from the

Commission to the pipeline” once it is condemned. Id.

¶¶52-53.

Instead, under the system Congress designed,

FERC is only tasked with determining whether an

exercise of eminent domain would be appropriate,

while a certificate holder is tasked with implementing

that determination and providing just compensation.

See NGA §§717f(e), 717(h).

8

II.

Pipeline Development Barriers Harm

IECA’s Members and the National

Economy.

IECA’s members depend on “the orderly

development of plentiful supplies of . . . natural gas at

reasonable prices.” See NAACP v. Fed. Power

Comm’n, 425 U.S. at 669-70. If the Court allows the

court of appeals’ decision to stand, the barriers to

pipeline development that the court of appeals’

decision impose (described supra) would significantly

harm IECA’s members by limiting or prohibiting their

much needed access to natural gas supplies.

A.

Manufacturers Need More Pipeline

Capacity to Access Natural Gas Supplies.

The NGA has a “superordinate goal of ensuring

the public has access to reliable, affordable supplies of

natural gas.” FERC Order ¶58. The Supreme Court

has explained that “the principal purpose of . . . [the

NGA is] to encourage the orderly development of

plentiful supplies of . . . natural gas at reasonable

prices.” NAACP v. Fed. Power Comm’n, 425 U.S. at

669-70.

“Congress passed the Natural Gas Act and gave

gas companies condemnation power to insure that

consumers would have access to an adequate supply

of natural gas at reasonable prices.” E. Tenn. Nat.

Gas Co. v. Sage, 361 F.3d 808, 830 (4th Cir. 2004).

FERC, the agency tasked with administering the

NGA, has further explained that “[e]ach of [the]

textual provisions [in NGA section 7] illuminate the

9

ultimate purpose of the NGA: to ensure that the public

has access to natural gas because Congress considered

such access to be in the public interest.” El Paso Nat.

Gas Co., L.L.C., 169 FERC ¶ 61,133, Dkt. No. CP18332-000 ¶24 (2019).

Today, natural gas pipeline capacity is either

inadequate or unavailable for many IECA member

companies to operate existing facilities, to expand or

build new manufacturing production facilities, or to

expand or build new electric self-cogeneration

facilities along much of the East Coast, West Coast,

and South, including New Jersey, New York,

Connecticut, Massachusetts, New Hampshire,

Maryland, California, Virginia, North Carolina, South

Carolina, and Tennessee.

As an example, even though the U.S. had a mild

2019-2020 winter with relatively lower seasonal

demand for natural gas, over this same period, IECA

companies received a record number of operational

flow orders (“OFOs”). An OFO is a communication

from a pipeline company to all capacity holders,

including manufacturing companies, stating that

there is insufficient pipeline capacity to supply the

expected demand. This forces manufacturers to

reduce their output (i.e., reduce their operating rate)

and exposes manufacturers to increased costs and

balancing penalties.

Reducing manufacturer

operating rates reduces profitability and jeopardizes

manufacturers’ abilities to serve customer demands.

If domestic manufacturers’ costs increase, or they

simply cannot supply their customers with needed

products, manufacturers risk losing business to

10

overseas competition, placing their facilities and jobs

at risk.

IECA companies are one-hundred percent

dependent upon pipeline infrastructure for natural

gas supply, and their dependence is only increasing.

Nationwide, industrial demand for natural gas is

expected to increase from 2019 levels of 8.33 trillion

cubic feet per year to 9.37 trillion cubic feet per year

in 2025, a 12.4 percent increase just over this period.

“Annual Energy Outlook 2020,” Energy Information

Administration,

available

at

https://www.eia.gov/outlooks/aeo/data/browser/#/?id=

77-AEO2020&region=00&cases=ref2020&start=2018&end=2050&f=A&linec

hart=ref2020-d112119a.24-77AEO2020&map=&ctype=linechart&chartindexed=0

&sourcekey=0.

Without a steady increase of pipeline capacity,

manufacturers cannot expand existing production

facilities or build new facilities that increase high

paying middle-class jobs, economic growth, and

needed exports. In 2018, the average manufacturing

worker earned $ 87,185 of wages and benefits. “Facts

About Manufacturing,” National Association of

Manufacturers,

available

at

https://www.nam.org/facts-about-manufacturing.

Without increased pipeline access, many individuals

who desire to be employed in the manufacturing

industry would be denied that privilege.

Manufacturers also use natural gas to

cogenerate electricity and steam energy that is in turn

11

used by manufacturing facilities. See generally

“Combined Heat and Power,” Environmental

Protection

Agency,

at

available

at

https://www.epa.gov/sites/production/files/201508/documents/chpguide508.pdf.

Cogeneration of

electricity is more than twice as energy efficient than

electricity generated by an electric utility. Id. at 1.

Cogenerated electricity represents between eleven

and thirteen percent of the manufacturing sectors’

demand for electricity.

See “Electricity use at

manufacturing establishments,” Energy Information

Administration,

https://www.eia.gov/todayinenergy/detail.php?id=354

72.

Because it is highly efficient, cogeneration

produces electricity for manufacturing facilities at

lower costs for these facilities than if they were to buy

their power from the grid. Because it is a source of

distributive energy, cogeneration also increases

electric grid reliability and reduces transmission line

losses, thereby reducing greenhouse gas emissions.

Id.

For these purposes, it is essential to

manufacturers that pipeline companies do not face

unreasonable barriers when they attempt to increase

natural gas pipeline capacity that is deemed by FERC

to be needed in the public interest.

12

B.

Manufacturers

Do

Not

Have

a

Comparable Alternative to Natural Gas.

1.

Manufacturers

have

no

environmentally acceptable

natural gas.

reliable

and

alternative to

Manufacturers use natural gas as an energy

source to operate factories, including as a fuel for

process heating, in combined heat and power systems,

and as a raw material (feedstock). See “Natural Gas

Explained,” Energy Information Administration,

https://www.eia.gov/energyexplained/naturalgas/use-of-natural-gas.php. Coal and fuel oil are not

suitable or reliable alternatives for these purposes.

While manufacturers can readily access natural gas

supplies by tapping into the interstate gas pipeline

grid, coal and a significant amount of fuel oil are

accessible to manufacturers only by rail. Fewer

manufacturing facilities are equipped with direct

access to rail than natural gas pipelines. If a factory

does not have an existing rail siting, supply of coal or

fuel oil may be impossible.

Use of coal or fuel oil to operate the facility or

for electric generation produces more greenhouse gas

emissions, more sulfur oxides (SOx), and more

nitrogen oxides (NOx,), than natural gas fired electric

generation.3 See “How much carbon dioxide is

produced when different fuels are burned ?” Energy

3 SOx and NOx are classified by the Environmental Protection

Agency as Criteria Air Pollutants. “Criteria Air Pollutants,”

Environmental

Protection

Agency,

available

at

https://www.epa.gov/criteria-air-pollutants.

13

Information

Administration,

available

at

https://www.eia.gov/tools/faqs/faq.php?id=73&t=11;

“Power plant emissions of sulfur dioxide and nitrogen

oxides continue to decline in 2012,” Energy

Information

Administration,

available

at

https://www.eia.gov/todayinenergy/detail.php?id=101

51 (stating that sulfur dioxide and nitrogen oxides

declined in part as a result of a shift from coal

generation to gas generation).

Renewable

resources,

while

perhaps

environmentally friendly, are not sufficiently reliable

or economically scalable for the typical manufacturing

facility, in part because the majority of renewable

resources are non-dispatchable Variable Energy

Resources whose ability to be called upon as a

resource when needed is “beyond the control of the

facility owner or operator.” Integration of Variable

Energy Resources, Order No. 764, 139 FERC ¶ 61,246,

Dkt. No. RM10-11-000, at ¶1 n.1 (2012). See also

“Combined wind and solar made up at least 20% of

electric generation in 10 states in 2017,” Energy

Information

Administration,

https://www.eia.gov/todayinenergy/detail.php?id=372

33 (“Unlike most other generating technologies, grid

operators generally do not dispatch wind and solar

generation because these generators produce

electricity only when the associated resources are

available . . . Other generating technologies that use

combustible fuels respond to grid dispatch commands

to increase or decrease generation as needed . . .

hydroelectric facilities with reservoirs have some

control over the dispatch of their electricity, and run

of the river generation is non-dispatchable because it

14

generates electricity as water passes through it.

Hydro facilities can also have seasonal limits on

dispatch based on available water resources.”)

Most

manufacturing

facilities

operate

continuously, twenty-four hours a day, seven days a

week. Natural gas pipelines can provide continuous

reliable supply, while renewable energy cannot.

Increasing generation of renewable energy

relies, in many instances, upon natural gas fired

generation as a back-up resource. Without access to

natural gas pipelines, renewable electricity

generators would be dependent upon using coal or fuel

oil as a backup generation resource which, as

discussed supra, produce more greenhouse gas

emissions and Criteria Area Pollutants than natural

gas-fired generation resources.

2.

Electricity does not provide an economic

alternative to natural gas for manufacturers.

Manufacturers cannot switch from using

natural gas to relying entirely on electricity

purchased from the grid. First, as a source of energy,

the cost of electricity is substantially more expensive

than natural gas on a unit-by-unit basis.

To

illustrate, we will assume that a company’s daily

natural gas use is about 100,000,000,000 British

Thermal Units. This example assumes a natural gas

price of $3.00/Million British Thermal Units (roughly

15

the industrial average over the past two years4) and a

purchased electricity price of $55.00/megawatt-hour

(roughly the industrial average over the past two

years5). The annual cost of natural gas would be

$109,500,000, while the same amount of energy

purchased in the form of electricity would cost

$588,709,000, almost six times as much.

Second, the manufacturing sector cannot easily

or economically convert its equipment to rely on

electric energy instead of energy from natural gas,

because the manufacturing industry has invested

trillions of dollars in equipment assets that can only

use natural gas. Switching to electricity for these

manufacturers is either impossible (based on the

configuration of existing facilities) or severely cost

prohibitive. In many cases, equipment that uses

natural gas is not commercially available to use

electricity.

Third, while manufacturers purchase between

eighty-seven and eighty-nine percent of their

4 Between 2018 and 2020, the price of natural gas per million

British Thermal Units has hovered between approximately $1.76

and $4.65 cents. See, e.g., “Henry Hub Natural Gas Spot Prices,”

Energy

Information

Administration,

available

at

https://www.eia.gov/dnav/ng/hist/rngwhhdd.htm.

Between 2018 and 2020, the price of a megawatt-hour of

electricity across various regions of the country has hovered

around $55 per megawatt-hour, occasionally spiking higher than

$100 per megawatt-hour. “Wholesale electricity prices were

generally lower in 2019, except in Texas,” Energy Information

Administration,

available

at

has

https://www.eia.gov/todayinenergy/detail.php?id=42456.

5

16

electricity from the grid (as opposed to self-generated

electricity), electric generation from the grid has

become increasingly reliant upon natural gas. See

“Electricity use at manufacturing establishments,”

Energy

Information

Administration,

https://www.eia.gov/todayinenergy/detail.php?id=354

72. For example, electricity produced by natural gas

generation at utility-scale facilities increased

approximately forty percent from 2014 to 2019,

totaling about thirty-eight percent of total electric

generation from utility-scale facilities across the

United States. “Net Generation by Energy Source:

Total (All Sectors), 2009-December 2019,” Energy

Information

Administration,

available

at

https://www.eia.gov/electricity/monthly/epm_table_gr

apher.php?t=epmt_1_01.

Therefore, even if manufacturers were able to

meet more of their energy demand through electricity

purchased from the grid, they would still need

increased pipeline capacity to guarantee a stable

supply of natural gas for electricity consumption.

C.

Without Increased Pipeline Capacity,

Some IECA Companies May Need to Move

Production and/or Investments to Other

Countries With Regulatory Certainty and

Better Access to an Economical Natural

Gas Supply; Regulatory Certainty is

Needed to Encourage Reshoring.

IECA companies have tough competition from

foreign companies that often receive subsidies,

including for natural

gas and electricity.

17

Manufacturing companies need confidence that

natural gas supplies will be available to meet their

current and future demand. When a manufacturer

invests capital to expand or build a new facility, it

does so assuming it will operate that facility for at

least fifty years. A company will not invest capital

without absolute assurance that it has reliable and

economical access to natural gas and electricity. The

low cost of shale natural gas provides an economic

incentive for companies to reshore their facilities back

to the U.S. Without pipeline regulatory assurance,

manufacturing will not be able to continue to do so.

According to the Bureau of Labor Statistics, since

December of 2009, manufacturing jobs have increased

twelve percent to 12.86 million workers, representing

1.35 million new manufacturing jobs.

See “All

employees, thousands, manufacturing, seasonally

adjusted,”

Bureau

of

Labor

Statistics,

https://data.bls.gov/timeseries/CES3000000001?amp

%253bdata_tool=XGtable&output_view=data&includ

e_graphs=true.

Abundant resources of natural gas in the

ground mean nothing unless there is pipeline capacity

available to move the natural gas to consumers like

IECA’s members.

Regulatory certainty―that a

pipeline company that receives approval through a

FERC certificate can proceed successfully with its

project―is needed for a pipeline company to invest in

a new project. The serious barriers to pipeline

development imposed by the court of appeals’ decision

diminish the regulatory certainty on which pipeline

companies depend to build new pipelines. Without

regulatory certainty for pipeline companies,

18

manufacturing companies recognize that supply of

natural gas via new pipeline capacity will not be

available for their manufacturing facilities.

Manufacturers will have no alternative but to move

production to other countries where there is access to

reliable and economical natural gas supply. The net

result is forgone economic growth and loss of high

paying middle-class manufacturing jobs.

CONCLUSION

For the foregoing reasons, the petition for a

writ of certiorari should be granted.

Respectfully submitted,

KENNETH VON SCHAUMBURG

Counsel of Record

DANIEL R. SIMON

OMAR BUSTAMI

CLARK HILL PLC

1001 Pennsylvania Ave., NW

Suite 1300 South

Washington, DC 20004

kvonschaumburg@clarkhill.com

(202) 772-0904

Counsel for Amicus Curiae

March 2020