[00:00:01] Speaker 03:
Case number 18-1248NL, City of Oberlin, Ohio, Petitioner, which is Federal Energy Regulatory Commission.

[00:00:09] Speaker ?:
Ms.

[00:00:09] Speaker ?:
Elefant, Petitioners, Ms.

[00:00:11] Speaker 04:
Vanshoek, Respondent, Mr. Super, and Ms.

[00:00:13] Speaker 04:
Rina.

[00:00:46] Speaker 04:
Good morning.

[00:00:47] Speaker 04:
May it please the Court, Carolyn Elephon for Petitioner, the City of Oberlin, and with me at council table is David Mucklau and Aaron Reinbaugh, Council for the Coalition to Reroute Nexus.

[00:00:58] Speaker 04:
Your Honours, the City's municipal property and the Coalition members' private property was taken in eminent domain by a pipeline that will transport gas across the boundaries to Canada, and in so doing also pushes the boundaries of this circuit's precedent.

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This circuit has held repeatedly, and most recently in Appalachian Voices versus Burke, that a pipeline that is 100% subscribed by long-term contracts will satisfy the need requirement of Section 7.

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Yet here, the Commission approved a pipeline that is only 59% subscribed, and of that 59%, a scant 22% is known to be going for domestic use.

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This court has held in border pipeline and its progeny that foreign commerce and interstate commerce are two entirely different animals covered by two separate provisions of the Natural Gas Act, Section 7 for interstate commerce, Section 3 for foreign commerce.

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Yet here the commission relied almost entirely on

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on a showing of need by gas that's going for export.

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And finally, in most of these cases that this court hears on review of FERC proceedings, they're subject to the Garden Variety Deferential Administrative Procedure Act standing.

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This case implicates constitutional rights, and as a result, when this court reviews the constitutional claims that the petitioners have raised, a de novo standard applies.

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I want to discuss first the issue of the lack of need for this pipeline and what sets it apart from, again, many of the cases that this court has affirmed commission certificates.

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Here this pipeline, at best case, was 59% subscribed.

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Of the 1.5 million decatherms a day capacity for this pipeline, only 200,000 of that, that's only 13%, is known to go for domestic use.

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Were it not for those exports and that other capacity, this pipeline would never have been approved under the Commission's own certificate policy statement.

[00:02:57] Speaker 01:
How do you get the 200,000 number?

[00:02:59] Speaker 01:
Because I thought that it was only, I think, 260,000 that is contracted to go to Canada.

[00:03:07] Speaker 04:
Yes, there's the 260, and in Nexus's brief at page 22, it also acknowledges that there's 200,000 by one of the suppliers, Chesapeake, which will also be going to Canada.

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When the Commission examined the different numbers,

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it had said that there was the 200 for domestic, the 260, the commission itself acknowledged the 260 for export, and the commission said it wasn't sure where the other gas was going.

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Like I said, Nexus has already acknowledged that of that 200

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by Chesapeake is going to be for export.

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And so that does leave 225,000 unaccountable.

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And the problem, the Commission's failure to make a finding on where the gas is going hampers its findings on need under Section 7.

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And the Commission at least needed to address where the gas was going and to say, well, we don't know if it's being used for domestic supply or for export, isn't sufficient for it to meet its burden

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of substantial evidence in terms of approving a pipeline under Section 7.

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There's got to be gas in interstate commerce.

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And as we argued, and even again, even if we include the other 400, the sort of unaccounted for gas, that gives us 600 dekatherms a day of that entire 1.5 million dekatherms.

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That still would not, if you're just looking at that 600, that still would not sustain a finding of need under Section 7

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applying the Commission Certificate Policy Statement.

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The Commission Certificate Policy Statement says that if you have precedent agreements that fully back a project, that will support a Section 7 finding, and this Court has affirmed that multiple times, but this wasn't that case.

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The Commission is trying to shoehorn these facts, a partially subscribed pipeline, into precedent that applies to fully subscribed.

[00:05:02] Speaker 01:
But the Certificate Policy doesn't require 100%.

[00:05:05] Speaker 01:
Prescription, right?

[00:05:06] Speaker 04:
Yes, that's correct, Your Honor.

[00:05:08] Speaker 04:
It doesn't require, what the certificate policy statement says, and as we argued in our reply brief and our brief, is that if you have, if most of the capacity is under a precedent agreement, that will support a finding of need.

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If you don't have most of the capacity under a precedent agreement, you can look to other factors.

[00:05:27] Speaker 01:
So what's your, go ahead.

[00:05:29] Speaker 01:
I'm sorry, so why isn't 59% most?

[00:05:32] Speaker 04:
So, well, FERC itself stated in its order that a substantial portion of the capacity was unsubscribed, and that's in the joint appendix of

[00:05:47] Speaker 04:
at page JA1051 where FERC admits that a significant part of capacity is unsubscribed.

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It then tries to backpedal in its brief and claim that the 59 percent is substantial, but that was its finding in its order and it can't backpedal.

[00:06:01] Speaker 00:
So it seems like there's two layers.

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If we're going to avoid, as you provocatively said at the beginning of your argument, pushing the boundaries of our cases and the boundaries of the country.

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If there's the 59% layer that has to do with allocation period, and then there's some fraction of that that has to do with allocation that is predictably going abroad.

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So are you saying that 59%, regardless of what happens,

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below that in terms of what goes to Canada is just not enough, period?

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Or are you saying 59% is problematic because when you factor in the share of that that's going to go to Canada, it becomes problematic, although 59% in and of itself wouldn't necessarily be if, for example, all of that

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was predictably allocated domestically.

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That's a good question because our argument in fact has evolved.

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We would say that 59%, even assuming all the 59% is for domestic use, there's no question about it.

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We would argue that that still falls short of FERC certificate policy statement because there's a significant amount that's unsubscribed and because there isn't sufficient proof that there is a future need.

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And that was the point that Commissioner Glick made in his dissent.

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He said that because the pipeline is undersubscribed and he didn't look at this export versus domestic, he just looked at it straight up and he said because there's only 59% that's subscribed, then we need to look at future use and he criticized the majority in this decision for cherry picking the evidence and picking the evidence that favored their showing of need while ignoring other evidence such as market studies showing that there was a need that was declining.

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So we think that the 59% as it stands

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is problematic, and under these facts, even if it were all domestic, wouldn't sustain a finding of need.

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However, that 59% becomes even more vulnerable when you start to look at the amount of that gas, that 59% that's going towards export, and that would be our second argument, is that the 59%, if this court were inclined to view 59% as adequate, it must then evaluate what portions of that 59%

[00:08:06] Speaker 04:
can actually be used to sustain the Section 7 findings.

[00:08:10] Speaker 00:
And what's your principle on the latter?

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At what point does it become problematic that some of the natural gas is going, at least initially, going to go abroad?

[00:08:19] Speaker 04:
Well, what the court would have to look at is taking out the amount of export, whether this would be a pipeline that would stand on its own.

[00:08:27] Speaker 04:
And by our calculations, again, it would either be, you know, could this pipeline stand on its own without those exports?

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And we know, again, we know that at a minimum the floor is 200,000, which is only 11% of the 1.5 million.

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I think even the commission itself would concede that that would not satisfy

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the public need.

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When you add in the 400, you get up to like 22 percent or 30 percent and again, it wouldn't pass, in our view, would not pass muster under the certificate policy statement.

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It's also something that the commission, it's an argument that the commission hasn't addressed.

[00:09:02] Speaker 04:
We can't speak for the commission.

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This is a case of first impression and there haven't been pipelines that have come before the commission or this court.

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that seek approval of a Section 7 certificate based on such a scant amount of domestic use, so it would at least be at a minimum something the Commission would have to explain.

[00:09:20] Speaker 00:
So your position is not that once we know that some of the natural gas, or once we can reliably predict that some of the natural gas is going to go, say, to Canada, that that in and of itself is a stop.

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It's that when you take that into account, plus the fact that you have 59% committed, then you just don't have enough committed.

[00:09:39] Speaker 04:
Yes, yes, and to sort of close out the argument, the kicker is really the eminent domain, because section three does not authorize eminent domain, and section seven of the certificate of the Natural Gas Act does authorize eminent domain.

[00:09:53] Speaker 04:
And so when you boost your numbers with export, FERC is really doing indirectly that which it cannot do directly, which is to authorize a certificate that will convey the power of eminent domain to a pipeline that is being used largely for export.

[00:10:09] Speaker 04:
If there are no other questions, I've reserved some time for rebuttal.

[00:10:15] Speaker 05:
Thank you.

[00:10:29] Speaker 05:
Council for Respondent?

[00:10:31] Speaker 03:
Yes.

[00:10:34] Speaker 03:
Good morning.

[00:10:34] Speaker 03:
Carol Banta for the Commission.

[00:10:36] Speaker 03:
I'll begin with the certificate policy statement and the analysis in this case.

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In the certificate policy statement, specifically on page 61749 of that, the Commission had said that the balancing of the benefits versus the residual adverse effects is a sliding scale approach.

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And it talks about how a pipeline

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Basically, the showing of the subscribed capacity or the other evidence of need and public benefit would be higher, would need to be higher to outweigh significant exercises of eminent domain.

[00:11:12] Speaker 03:
So if we look at the certificate order in this case, paragraph 49, really the analysis in, it begins in 41, but the key part I'm looking at is 49, which is at JA 1054.

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It begins in 41 by saying we have a sufficient demonstration of need, but the key in section 49 is the last two, paragraph 49, is the last two sentences.

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In this case, the pipeline came in with 93% of the pipeline route being obtained without the use of eminent domain.

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45% is co-located on existing rights of way, railroad, electric transmission, things like that.

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42% agricultural use, and

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I don't know how the agricultural part breaks down, but they came in with 93% already obtained without needing any exercise in eminent domain.

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And what the commission is saying in paragraph 49, that's very high.

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That is such a large portion that has been acquired without the use of eminent domain.

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It strongly supports a finding that the applicant's efforts have minimized the potential for adverse

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impacts on landowners.

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So the Commission not only found that 59% was a showing of need, it's not as high as some cases, but the Commission pointed to the fact that the percentage of the pipeline route that wouldn't even have been domain at all was unusually large.

[00:12:36] Speaker 03:
So then the sliding scale approach

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the way the commission applies the policy statement.

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You may not need 100% or close to 100% contracts to outweigh a very small use of eminent domain.

[00:12:47] Speaker 01:
Now, my understanding is... I don't understand where that gets you, though, because even if it's 1% that's of eminent domain that's needed, that's someone's property that's being taken, and that raises constitutional issues.

[00:13:06] Speaker 01:
It does, yeah.

[00:13:09] Speaker 01:
Even if that's 0.1% of the project, ultimately that's someone's property that's constitutionally protected.

[00:13:24] Speaker 01:
So I don't understand where you're going with this argument.

[00:13:28] Speaker 03:
Well, in making the finding of public convenience and necessity, the Commission has always applied the sliding scale.

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Yes, to that 7%, it is significant.

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But the Commission, I mean, those aren't the only findings the Commission made.

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The Commission went through a great deal of detail about

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why downsizing the pipeline wouldn't change the route, making it smaller wouldn't change the route.

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Other pipelines could not serve this market need that was shown by these contracts.

[00:14:01] Speaker 03:
So in the context of pipeline cases, there are often more substantial exercises of eminent domain.

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In this context, 93% obtained without it was quite high.

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As for the constitutional question, I mean, the commission cited the other cases, such as Transco and Mountain Valley, which was affirmed in Appalachian Voices, that the finding of public convenience and necessity under 7E, under 15 USC 717 FE,

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is sufficient for the exercise of eminent domain in section 7H or 717FH.

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And Appalachian Voices and Midcoast have upheld that.

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The statute doesn't require, the finding of public convenience and necessity is a finding of public use because of the cases going back some years that pipelines are a form of public utility.

[00:15:05] Speaker 03:
So that is how the commission got from 59%, which in a case that required more eminent domain, like I said, 93% is unusually high to obtain without it.

[00:15:17] Speaker 00:
It was 59%, but then the commission also, I think, said that the 59% was expected to grow over time.

[00:15:25] Speaker 03:
It was.

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And it also looked at the fact if the commission directed the pipeline to build a smaller pipeline so that it didn't have that as much unsubscribed capacity, it did the analysis and found that it wouldn't change the route.

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It wouldn't have any more effect on the residual adverse impacts.

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of the pipeline.

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So you have these 885,000 deca-therms per day of shown market need through precedent agreements.

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And they can't be served by other pipelines in the area.

[00:16:01] Speaker 03:
There aren't that many other pipelines in the area, which is one of the benefits that the commission found in addition to the market need.

[00:16:06] Speaker 03:
It found bringing infrastructure, pipeline infrastructure, and diverse supplies into the region, giving more access to some of the eastern

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gas into a region that has in the past, I think, imported most of its gas from Canada.

[00:16:20] Speaker 03:
So bringing a diversity of supplies, bringing more infrastructure, increasing the reliability of the overall pipeline grid, the Commission looked at all of that in these orders.

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and said that, as I said, downsizing the pipeline wouldn't reduce where the route needs to go, and the other pipelines couldn't serve that.

[00:16:40] Speaker 03:
Even if they had the capacity, they would require hundreds of miles of laterals to serve it.

[00:16:46] Speaker 01:
To what extent can the Commission use precedent agreements that are clearly for export to justify project need under Section 7?

[00:17:00] Speaker 01:
in the consistent with border pipeline.

[00:17:04] Speaker 03:
Well, I think the commission said in paragraph 45 of the rehearing order on J-1228, it rejected the assumption that much of this gas was not for domestic consumption.

[00:17:16] Speaker 03:
There is the, I think, 260,000, up to 200, that doesn't mean 260,000 would be flowing at any given time, but up to 260,000 decotherms per day for the two local distribution companies in Canada.

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But as to the rest,

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Besides the deliveries we know are going to domestic local distribution companies and one electric utility, the Commission rejected the assumption that the gas producers got the option to send gas all the way to Canada.

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But they don't have to.

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They have access to the delivery.

[00:17:52] Speaker 01:
You're talking about the 260,000.

[00:17:55] Speaker 01:
Let's focus on that.

[00:17:56] Speaker 03:
Well, we know about the 260, right?

[00:18:00] Speaker 01:
So why is it appropriate to consider that?

[00:18:05] Speaker 03:
I think that the Commission, it doesn't break it down like that because it is looking at other benefits to the pipeline like the infrastructure.

[00:18:15] Speaker 01:
Why shouldn't we send it back?

[00:18:16] Speaker 01:
Because they didn't look at that.

[00:18:18] Speaker 01:
It didn't give us an explanation about why it was appropriate to consider that.

[00:18:22] Speaker 03:
Because I think with the producers and the domestic, I think given the unusually high amount of, as I said, the sliding scale approach, I think the Commission

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found that to be enough.

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Now, in town of Weymouth, this court said that just because some gas is being exported, in that case, it was 52% of the capacity was, they said, slated for export.

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And in that case, it was much more certain.

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The construct of that pipeline, it was much more certain that that gas was going to Canada.

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Whereas here, at certain times of year, it may go to the Don Hub.

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It may well end up back in New York, because the Don Hub sells into the United States and into Canada.

[00:19:04] Speaker 03:
The town of Weymouth said, even knowing that 52% of that gas was slated for export, that that doesn't go against finding the pipeline.

[00:19:15] Speaker 01:
Let's suppose because it's a judgment that we're not bound by that that doesn't exist.

[00:19:22] Speaker 01:
What else have you got?

[00:19:28] Speaker 03:
Besides town of Weymouth, I think, I mean the reasoning of town of Weymouth that exporting to Canada is not contrary to the public interest and the commission is focusing as it did in the paragraph 45 of the hearing order on the domestic benefits and the potential domestic consumption of gas.

[00:19:51] Speaker 03:
But the commission just doesn't break it down to say that 260, I mean even the 260 that's going to Canadian local distribution companies is coming from American producers.

[00:20:04] Speaker 03:
So I don't know, the commission doesn't analyze it that way.

[00:20:08] Speaker 00:
And as I understand the way this works, when there is in fact an export,

[00:20:13] Speaker 00:
then there has to be a Section 3 certificate attached to that, right?

[00:20:17] Speaker 03:
I'm glad you asked that.

[00:20:18] Speaker 03:
There are two kinds of Section 3 authority, neither of which is implicated in this case.

[00:20:24] Speaker 03:
One is to build the facility that crosses the border.

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And the facilities that cross the border that could be used in this case were certificated in 1989 and 2001.

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The DTE gas was certificated in the name of Michigan in 1989.

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Vector got its certificate actually to import in 1999 and then to export in 2001.

[00:20:46] Speaker 03:
So those are existing built facilities.

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They're not being built as a result of this order and they have their authority.

[00:20:52] Speaker 03:
The shippers have title to the gas.

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So a shipper who wants to send their gas to the Dawn Hub has to get its own section three authorization from

[00:21:02] Speaker 03:
from the Department of Energy, not from FERC.

[00:21:05] Speaker 03:
So for instance, I looked up in Union Gas in September 2018, got authority to export up to 150,000.

[00:21:15] Speaker 03:
It specifically cited the gas that it would transport through the Nexus pipeline, taking title at the Kensington Processing Plant in Columbiana County.

[00:21:26] Speaker 03:
So those Section 3 approvals,

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for the facilities date back decades and for the actual export are being obtained separately by the shippers themselves, not the pipeline.

[00:21:36] Speaker 03:
And they can't do it if they don't have that authority.

[00:21:40] Speaker 05:
All right, but the application here and the order has, what, four separate parts.

[00:21:48] Speaker 05:
There's the construction, but then there's the leasing.

[00:21:52] Speaker 03:
Right.

[00:21:54] Speaker 03:
But the issues in this case all center on the construction, the eminent domain and so on.

[00:22:01] Speaker 05:
I understand that, but if the reason for the construction and the firm commitments is because of the export to Canada, that's a different scenario.

[00:22:16] Speaker 03:
Well, first of all, the commission didn't accept that that was the case.

[00:22:19] Speaker 03:
The commission was looking at the service to domestic markets in Ohio and Michigan, and it was looking at the, not only firm delivery points, but secondary delivery points.

[00:22:31] Speaker 03:
Like a shipper who has authority and may often, or at some point ship its gas to the Don Hub, may well at some times a year find that it would rather sell it in Michigan.

[00:22:42] Speaker 03:
or in Ohio.

[00:22:44] Speaker 03:
And the pipeline is designed to be that way.

[00:22:46] Speaker 03:
And there are a lot of pipelines like this that might be several hundred miles long across US states.

[00:22:52] Speaker 03:
But because the whole pipeline grid is interconnected, Vector doesn't export gas to Canada just for Nexus.

[00:23:01] Speaker 03:
It does it for Rover.

[00:23:02] Speaker 03:
It does it for Vector's own pipeline.

[00:23:03] Speaker 03:
It does it for other pipelines coming into Michigan.

[00:23:07] Speaker 03:
So that's why the commission says when you're constructing at the border, that's section three.

[00:23:12] Speaker 01:
So do you think that the Commission could approve a pipeline where 100% of the Presidents subscription agreements say that the gas is definitely going to Canada?

[00:23:31] Speaker 01:
All of it.

[00:23:33] Speaker 03:
I don't think it's ever seen a case like that.

[00:23:35] Speaker 03:
And because of the Commission's emphasis on flexible delivery points, I don't know what it would make of that circumstance.

[00:23:42] Speaker 03:
I do know there are some pipelines that are associated with LNG.

[00:23:46] Speaker 01:
Would that be consistent with Section 7?

[00:23:51] Speaker 03:
I think the Commission might find that it is.

[00:23:52] Speaker 03:
I know that some of the pipelines that are connected to LNG terminals are treated under Section 7 and not under Section 3.

[00:24:00] Speaker 01:
So what work does section three do there?

[00:24:03] Speaker 01:
You say it's irrelevant?

[00:24:06] Speaker 03:
Section three applies to LNG terminals, obviously, and to pipeline that crosses the border, but not necessarily other pipelines that interconnect with that.

[00:24:17] Speaker 01:
So someone could say, we are going to export 100% of this gas from the Marcellus Shale

[00:24:28] Speaker 01:
overseas and we're going to take property of U.S.

[00:24:32] Speaker 01:
citizens in order to construct that pipeline, and that's consistent with Section 7 and consistent with the Constitution.

[00:24:41] Speaker 03:
No, I think the Commission would require the pipeline to make a showing of domestic

[00:24:48] Speaker 03:
I think that the, from what I've seen, we haven't had that case, but the Commission would, as I said, the Commission doesn't focus on the export, potential export part of this.

[00:25:03] Speaker 03:
It rejects what it calls the mistaken assumption that this is not

[00:25:07] Speaker 03:
I'm sorry, mistaken assumption that this is not for domestic consumption.

[00:25:11] Speaker 03:
And everything the commission focuses on in these orders is the domestic piece, the markets in Ohio and Michigan and the flexible delivery points along that line.

[00:25:23] Speaker 03:
So I don't know what the commission would do, but I think it would have a different analysis than in this case.

[00:25:28] Speaker 03:
if it were actually presented with a case that explicitly didn't have domestic consumption in mind.

[00:25:34] Speaker 03:
But that's not this pipeline.

[00:25:35] Speaker 01:
Are you familiar with the Driftwood case decided by the Commission on April 18th of this year?

[00:25:40] Speaker 03:
No.

[00:25:43] Speaker 01:
My understanding is that it involved a pipeline where it was 100% subscribed for export.

[00:25:51] Speaker 03:
I'm not familiar with that, no.

[00:25:53] Speaker 03:
But I would assume the Commission did a different analysis of that.

[00:25:58] Speaker 03:
that it did in this case.

[00:26:00] Speaker 01:
Well, I guess my point is that it seems concerning to me that the Commission didn't really spell out what weight and how that affected the analysis under the given statutes, given that there was a significant percentage of the

[00:26:27] Speaker 01:
capacity that was a basis for the need finding that was destined for export.

[00:26:36] Speaker 01:
Why shouldn't that be troubling to us that we don't really have an analysis from the Commission?

[00:26:42] Speaker 03:
Well, I think that the Commission only, in its analysis, I think only took the 260 going to the Canadian local distribution companies as

[00:26:56] Speaker 03:
known that it would, even those I think they could sell into the United States in the seasons that they don't need them.

[00:27:03] Speaker 03:
So the commission I think doesn't, maybe in a case like, I don't even know what the commission said in the case underlying the Town of Weymouth decision.

[00:27:14] Speaker 03:
But as I said, in that case, it was clear that 52% of the gas was likely going to Canada.

[00:27:20] Speaker 03:
But the commission didn't accept that as the premise here, given seasonal differences, seasonal flows and seasonal differences between when Canada might need more gas and when Ohio and Michigan may need more gas.

[00:27:33] Speaker 03:
So I think that the commission was looking at the benefits to the domestic

[00:27:38] Speaker 03:
markets.

[00:27:39] Speaker 03:
And as I said, the infrastructure in this area, the pipeline grid, this pipeline was designed so that it can also connect up with other pipelines going farther west to supply, to reach Chicago markets, or I should say Illinois markets.

[00:27:55] Speaker 03:
So that was all in the mix.

[00:27:57] Speaker 03:
So the commission wasn't looking at this as being, necessarily being substantially for export.

[00:28:03] Speaker 03:
It was looking at the domestic aspects of it.

[00:28:08] Speaker 05:
All right.

[00:28:09] Speaker 05:
Thank you.

[00:28:13] Speaker 05:
All right.

[00:28:13] Speaker 05:
Counsel for interviewing us.

[00:28:16] Speaker 02:
Good morning.

[00:28:17] Speaker 02:
David Super on behalf of Nexus.

[00:28:20] Speaker 02:
Touching on a point that you made, Judge Srinivasan, when the commission relied upon the 59% level of subscriptions, it did contemplate that that percentage would be growing.

[00:28:31] Speaker 02:
And it has grown since then.

[00:28:33] Speaker 02:
The number is actually up to 71% as of April of this year.

[00:28:36] Speaker 02:
It's something the court could take judicial notice of.

[00:28:39] Speaker 02:
It's provided on a website by NEXUS as required by FERC.

[00:28:44] Speaker 02:
I'm sorry?

[00:28:45] Speaker 05:
How is that?

[00:28:47] Speaker 02:
Well, the commission requires NEXUS to keep that information, make it available to the public via website.

[00:28:54] Speaker 02:
And that website provides, lists all the contracts that are applicable today.

[00:28:58] Speaker 02:
And again, right now the level of subscription capacity is 71%.

[00:29:02] Speaker 01:
How many of those subsequent agreements are for export?

[00:29:07] Speaker 02:
Well, there really are none that for export.

[00:29:10] Speaker 02:
I think that's a misconception that while even a shipper such as EAB Ohio or Chesapeake that has firm delivery rights to the border, that's not to say that that gas will actually end up in Canada.

[00:29:25] Speaker 02:
It has rights all along the entire pipeline.

[00:29:28] Speaker 02:
And that is sort of the whole point of the restructuring of the

[00:29:32] Speaker 02:
natural gas pipeline grid that FERC enacted in Order 636.

[00:29:36] Speaker 02:
It's to allow shippers to have access to all points along the entire route.

[00:29:43] Speaker 02:
And in fact, for a shipper like EAB Ohio that does have firm delivery rights to the Dawn Hub, FERC has recognized that the Dawn Hub is a very liquid trading market.

[00:29:54] Speaker 02:
So some percentage of that gas that ends up at Dawn Hub

[00:29:56] Speaker 02:
could very well make it back into the United States back in interstate commerce.

[00:30:02] Speaker 05:
I mean, you know what's happening on the ground.

[00:30:04] Speaker 05:
But I thought part of the point was the demand in the United States was decreasing for some of this natural gas.

[00:30:11] Speaker 05:
And Canada was an attractive market, given the shift to some of the renewables.

[00:30:18] Speaker 05:
So this notion that, well, maybe some of this gas will get to Canada, I mean,

[00:30:26] Speaker 05:
That just seems to me that we're talking about a fake world.

[00:30:29] Speaker 02:
Well, actually, Your Honor, again, on a public website that's available to anyone, we can actually see how much gas did end up in Canada from the Nexus pipeline.

[00:30:38] Speaker 02:
As of April, it was 25 percent.

[00:30:40] Speaker 02:
So the rest of it was flowing through pipes in the United States, in interstate commerce.

[00:30:44] Speaker 05:
So that's 25 percent as of

[00:30:48] Speaker 02:
That was April of 2019, 26 percent was making it to the Dawn Hub.

[00:30:55] Speaker 02:
And of that 26 percent, the way the market is designed to work and the way that FERC restructured the market to work, some percentage of that gas is going to end up back in the United States, just given the volatility of the trading hub that is the Dawn Market.

[00:31:08] Speaker 00:
Is it not true that, conversely, that of the 75 percent,

[00:31:12] Speaker 00:
some of that won't end up going somewhere else, too?

[00:31:14] Speaker 02:
The 75 percent is in the United States.

[00:31:16] Speaker 00:
And it stays in the United States.

[00:31:17] Speaker 00:
It's not, it's not.

[00:31:19] Speaker 02:
Well, you can't, you can't, that's one of the challenges with this.

[00:31:22] Speaker 02:
You really can't know where gas is going to end up at the time.

[00:31:26] Speaker 02:
It's sort of a, you have to look back and see where it ended up.

[00:31:29] Speaker 02:
But as of April, 76 percent or 74 percent of the gas was in the United States being delivered to points in Ohio and Michigan.

[00:31:37] Speaker 02:
74% of it went to the Dawn Hub.

[00:31:39] Speaker 05:
But I'm back in the real world.

[00:31:41] Speaker 05:
Investment decisions are made all the time projecting where the gas is going to go.

[00:31:49] Speaker 02:
You're right, Your Honor.

[00:31:50] Speaker 05:
You're right.

[00:31:51] Speaker 05:
So this notion that we don't know where this gas is going, I mean, Council, you know a lot more about this, obviously, but we can't ignore some basic facts, and FERC isn't

[00:32:05] Speaker 05:
denying those facts either.

[00:32:06] Speaker 02:
That is true, Your Honor.

[00:32:08] Speaker 05:
That's acknowledging that gas is going to do some things domestically, but also it doesn't know where a large percentage is going, it says, but it doesn't deny that it could all end up in Canada.

[00:32:25] Speaker 02:
Very unlikely that it would all end up in Canada.

[00:32:27] Speaker 02:
Here we've got three shippers.

[00:32:29] Speaker 05:
Well, I mean, your client had the opportunity to put in evidence to show that it wouldn't

[00:32:35] Speaker 05:
And it didn't.

[00:32:37] Speaker 02:
Well, it actually did, Your Honor, respectfully.

[00:32:40] Speaker 05:
Where is that evidence?

[00:32:42] Speaker 02:
Well, it presented precedent agreements that have delivery points throughout the entire line.

[00:32:48] Speaker 05:
But that's the 59%.

[00:32:49] Speaker 05:
I'm talking about the rest, where Perk made no findings.

[00:32:56] Speaker 02:
The rest being the

[00:32:58] Speaker 02:
Okay, and that's where you actually, I think there's a misconception about whether there actually was a finding of increased demand in the record.

[00:33:11] Speaker 02:
FERC absolutely found that there was a growth in demand by looking at market studies.

[00:33:15] Speaker 00:
Can I just ask a point of clarification?

[00:33:18] Speaker 00:
I thought with the 41%, we don't have any idea because it's not committed.

[00:33:21] Speaker 00:
So we're only talking about the 59% to begin with, and we're talking about how that 59% is allocated.

[00:33:27] Speaker 00:
That is correct.

[00:33:27] Speaker 00:
That is correct.

[00:33:28] Speaker 02:
And today it's 71%.

[00:33:30] Speaker 00:
Right.

[00:33:30] Speaker 00:
Well, put that aside.

[00:33:31] Speaker 00:
Let's stay in the 59% world.

[00:33:33] Speaker 00:
OK.

[00:33:34] Speaker 00:
With the 51%, it's not committed.

[00:33:37] Speaker 00:
That is true.

[00:33:37] Speaker 00:
The 59% is committed.

[00:33:39] Speaker 00:
That is true.

[00:33:39] Speaker 00:
The issue is that of that 59%,

[00:33:42] Speaker 00:
at least some of it predictably is going to go to Canada.

[00:33:46] Speaker 00:
We might not know exactly how much, but it seems like everybody's on a common understanding that at least some of it is, and it's not an insignificant share.

[00:33:57] Speaker 02:
There is an expectation that some of that gas could end up in Canada if those shippers utilize their primary delivery points.

[00:34:04] Speaker 02:
They could utilize secondary delivery points if the market in Canada is not the best market for that gas.

[00:34:11] Speaker 02:
For example, the

[00:34:12] Speaker 02:
the Canadian utilities have to contract for enough gas and enough capacity to serve their peak demand day.

[00:34:20] Speaker 02:
If it turns out that they don't need that gas for peak demand days, they can move that gas to other attractive markets or they can release that capacity to other shippers who can then move that gas to a more attractive market.

[00:34:34] Speaker 02:
And that sense of allocative efficiency is exactly what FERC was trying to capture when it restructured the grid

[00:34:41] Speaker 02:
in Order 636, which this court accepted.

[00:34:44] Speaker 05:
Right, but that had a lot to do with unbundling, et cetera.

[00:34:48] Speaker 05:
But what I want to be clear about, and I don't disagree with what my colleague just said, but heretofore, I thought, FERC had gone along by saying most of the capacity has been committed.

[00:35:03] Speaker 05:
That's right.

[00:35:03] Speaker 05:
We don't have that here.

[00:35:05] Speaker 05:
So all we have is 59%.

[00:35:07] Speaker 05:
And the focus is, we've been chatting about what happens to the 59%.

[00:35:14] Speaker 05:
My only point is that there's this other capacity that may not be committed right now, but just to boggle the mind that investments are being made with the idea that 41% is not going to be used.

[00:35:34] Speaker 05:
and where the attractive market is there for natural gas in Canada, the question is, is the tail wagging the dog?

[00:35:47] Speaker 02:
Your Honor, I think there is an error built into that question.

[00:35:52] Speaker 02:
This notion that the attractive market is in Canada

[00:35:56] Speaker 02:
That in fact runs counter to the market reports that the Commission relied upon in approving this project.

[00:36:01] Speaker 02:
It did stop at 59% subscriptions.

[00:36:05] Speaker 02:
It then went to look at other evidence that supported public need.

[00:36:09] Speaker 02:
There was an Ohio market study that showed

[00:36:12] Speaker 02:
a need for gas in the future in the northern Ohio markets.

[00:36:16] Speaker 02:
There was a Michigan Public Service Commission study found the same thing for Michigan.

[00:36:21] Speaker 02:
So this notion that there's not a demand for natural gas in the upper Midwest is simply incorrect.

[00:36:27] Speaker 02:
The commission relied upon studies that showed the demand for gas in Ohio and Michigan, and the commission

[00:36:35] Speaker 02:
is the agency with the discretion and the expertise to weigh these studies and come to a conclusion.

[00:36:41] Speaker 05:
There are studies pointing elsewhere, but the commission said we're not going to accept those for purposes of the 59%.

[00:36:52] Speaker 05:
What I'm concerned about, what's a little discomforting here, is this uncommitted.

[00:37:01] Speaker 05:
What's going to happen there?

[00:37:03] Speaker 02:
Well, the Commission found that there's a growing demand for gas in Ohio and Michigan.

[00:37:07] Speaker 05:
There's an oversupply coming out of... But it was focusing on the 59% to show that that, contrary to petitioner's argument, wasn't really for export to Canada, because there was this need, and the studies that the Commission credited showed that.

[00:37:27] Speaker 05:
And it's just this elephant in the room.

[00:37:30] Speaker 02:
I think the studies also, Your Honor, show that there's a demand for the 41 percent.

[00:37:34] Speaker 02:
That's the key.

[00:37:36] Speaker 05:
I didn't see that in the Commission's decision or the rehearing order, but maybe it's there.

[00:37:42] Speaker 02:
If you look at Joint Appendix 1222, the Commission is talking about being unpersuaded by the studies by Sierra Club and the City of Oberlin.

[00:37:51] Speaker 05:
As to what?

[00:37:53] Speaker 05:
The 59%?

[00:37:54] Speaker 02:
No, that's for the further capacity.

[00:37:57] Speaker 02:
The commission is... What paragraph are you in?

[00:38:00] Speaker 05:
That's 34?

[00:38:02] Speaker 02:
I actually do not have that written down.

[00:38:05] Speaker 05:
I know it's... Well, that's 1222.

[00:38:07] Speaker 02:
Right.

[00:38:08] Speaker 05:
All right.

[00:38:10] Speaker 02:
Well, the commission relied upon the Ohio market study in the hearing order at

[00:38:21] Speaker 02:
to an appendix 1220 and 1221.

[00:38:23] Speaker 05:
But you've represented here this morning, Council, just so I'm clear, that nobody knows what's going to happen to the 41%.

[00:38:30] Speaker 05:
So when you submitted these studies to FERC on which FERC relied, it was focusing on petitioner's challenge that this was really what it calls an export pipeline.

[00:38:44] Speaker 05:
And your studies, which the commission accepted, said no, there's this demand.

[00:38:49] Speaker 02:
That's correct.

[00:38:51] Speaker 05:
All right?

[00:38:52] Speaker 05:
It wasn't addressing the 41%.

[00:38:54] Speaker 05:
That's all I'm getting.

[00:38:56] Speaker 02:
I respectfully think they were addressing the 41%.

[00:38:59] Speaker 02:
I mean, the commission, a big part of the commission's decision here was not just looking at the 59, the current 59, now 71% subscriptions.

[00:39:09] Speaker 02:
They were looking at a growth in demand in Ohio and Michigan, and they cited three studies that supported that.

[00:39:16] Speaker 02:
In addition, they relied upon the fact that the Marcellus and Utica regions were producing a lot of gas, and there was insufficient infrastructure to move that gas.

[00:39:25] Speaker 02:
So there was ample studies beyond the 59% subscription level that supported the public need for this project.

[00:39:34] Speaker 02:
It would take me a little time.

[00:39:36] Speaker 02:
The studies on the other side, the Commission either addressed them and rejected them, found that the methodology was flawed, and that's in the record, or for example the two FERC market reports that the petitioners rely upon

[00:39:51] Speaker 02:
entirely support the project.

[00:39:53] Speaker 02:
I mean, there's one where they talk about a limited amount, or there's one where they're talking about 49 BCF per day of pipeline projects that are pending as of March of 2016.

[00:40:08] Speaker 02:
The very next line in that report and then the carryover to the next page says, and in order to have enough shipping to carry that capacity, we need these projects to be approved.

[00:40:18] Speaker 02:
And the Nexus project was one of the projects in line waiting to be approved.

[00:40:23] Speaker 05:
You're more familiar with these studies, but what I was focusing on in paragraph 34 is the Commission's statement, where it says, given this uncertainty associated with long-term demand projections, where an applicant has precedent agreements for long-term firm service, the Commission deems the precedent agreements to be the better evidence of demand.

[00:40:49] Speaker 05:
So I read that to be, that's what the 59% is what the Commission's focusing on.

[00:40:55] Speaker 05:
And maybe I just misunderstood the study.

[00:40:57] Speaker 02:
Now I think the Commission absolutely focused on the 59% subscriptions, but it didn't stop there.

[00:41:07] Speaker 02:
It also discussed

[00:41:09] Speaker 02:
the market studies.

[00:41:11] Speaker 02:
It also discussed input by other interested parties.

[00:41:14] Speaker 02:
I mean, it relied upon the fact that there was not enough infrastructure in the Marcellus region to move the gas.

[00:41:21] Speaker 02:
It relied upon the fact that enhancing the pipeline grid in general would allow various Midwestern markets, most significantly the Chicago hub, to access additional supplies of gas.

[00:41:33] Speaker 02:
So there was a robust

[00:41:35] Speaker 02:
gathering of evidence that the Commission did rely upon to support public need in addition to the 59% subscriptions.

[00:41:44] Speaker 01:
What should happen if the Commission is faced with an application for certificate

[00:41:54] Speaker 01:
where the precedent agreements are 100% for export?

[00:42:03] Speaker 02:
Respectfully, I have to just, in terms of that question, there really is no such thing as a precedent agreement where the gas is 100% totally for export.

[00:42:15] Speaker 02:
That just doesn't exist.

[00:42:18] Speaker 02:
At least in this case, it doesn't exist.

[00:42:19] Speaker 02:
And I'm not aware of such an animal.

[00:42:23] Speaker 02:
Here we've got contracts where certain shippers, yes, do have primary delivery points that could take their gas to the border.

[00:42:29] Speaker 01:
Let's suppose then you want to change my hypothetical.

[00:42:32] Speaker 01:
I'll accept your friendly amendment.

[00:42:35] Speaker 01:
OK.

[00:42:36] Speaker 01:
So 100% say their primary destination is

[00:42:42] Speaker 01:
Okay.

[00:42:44] Speaker 02:
So in that situation, one could not know whether gas will end up in Canada or what amount of gas will end up in Canada until after the fact.

[00:42:53] Speaker 02:
When you look at the facts of the ground with delivery points throughout the entire line, some substantial portion of the gas will end up in the United States.

[00:43:01] Speaker 02:
But if the question is directed to whether it should be governed by Section 3 or Section 7, which I understand we've been talking about before,

[00:43:11] Speaker 02:
In this situation, you've got a pipeline that's gathering gas that is produced in Ohio, Pennsylvania, and West Virginia, and it is shipping that gas to points in Ohio and Michigan, albeit some of that gas to various contracts can make its way to the border.

[00:43:28] Speaker 02:
But that structure, by definition, is interstate commerce, and thus it's governed by Section 7.

[00:43:36] Speaker 01:
But I want you to answer my hypothetical.

[00:43:40] Speaker 01:
which is that there are precedent agreements for 100% of capacity and they are written to say that the primary distribution point ultimately for that gas is the Dawn Hub.

[00:43:59] Speaker 01:
Okay.

[00:44:00] Speaker 02:
Your Honor, I'm not aware of a case like that.

[00:44:02] Speaker 02:
I'm going to take a shot at it.

[00:44:04] Speaker 02:
I think it's a policy issue, but my answer would be if that gas is being gathered in Ohio, West Virginia, and Pennsylvania, and there are delivery points in Michigan and Ohio,

[00:44:16] Speaker 02:
Even if each of the contracts calls for a primary delivery that would take the gas to the border, that's interstate commerce, that's governed by Section 7.

[00:44:24] Speaker 02:
How is that consistent with border pipeline?

[00:44:26] Speaker 02:
Because, Your Honor, border pipeline involved a pipeline that was entirely within the state of Texas.

[00:44:33] Speaker 02:
Thus, there was no possibility to assert the applicability of Section 7.

[00:44:38] Speaker 02:
There simply was no interstate commerce in that case.

[00:44:41] Speaker 02:
And so it really is distinguishable.

[00:44:43] Speaker 01:
I mean, the question was whether... It's distinguishable, but our reasoning... I mean, we have language in there that...

[00:44:53] Speaker 01:
notwithstanding the interstate commerce aspect of this, talked about what is foreign commerce and what is interstate commerce.

[00:45:04] Speaker 02:
I understand it.

[00:45:05] Speaker 02:
If you have interstate commerce, as Marilyn V. Louisiana said, once the molecules are in interstate commerce, they stay in interstate commerce throughout their entire path.

[00:45:15] Speaker 02:
I think the analogy to border would work is if, say, the Nexus Greenfield pipeline began in Michigan and terminated in Michigan, and that led to a border crossing owned by vector pipeline.

[00:45:31] Speaker 02:
Then at least you'd be talking about a pipeline that was truly an intrastate pipeline, and you'd have an interesting question about whether Section 3 could apply to that intrastate pipeline.

[00:45:41] Speaker 02:
But here, because the pipeline originates in Ohio,

[00:45:45] Speaker 02:
crosses into Michigan after gathering gas in Ohio, Pennsylvania, and West Virginia, you've got interstate commerce.

[00:45:52] Speaker 02:
And that is a point, I don't think there's any way around that.

[00:45:56] Speaker 02:
It is simply interstate commerce.

[00:45:59] Speaker 05:
All right.

[00:46:00] Speaker 05:
Anything further?

[00:46:01] Speaker 02:
Not unless the panel has further questions.

[00:46:03] Speaker 02:
Thank you.

[00:46:03] Speaker 05:
Thank you for your assistance.

[00:46:06] Speaker 05:
All right.

[00:46:06] Speaker 05:
Council for Petitioners.

[00:46:10] Speaker 04:
A few points, Your Honor.

[00:46:11] Speaker 04:
Our brief at page 25 to 28 discusses the whole issue of the market needs studies.

[00:46:17] Speaker 04:
With regard to the contracts, it's very ironic that the Commission now insists that these contracts have no destination points, everything is fungible because the Commission rejected alternatives to the project because the gas wouldn't be delivered to the points specified in the precedent agreements.

[00:46:33] Speaker 04:
So you can't say that the precedent agreements matter in terms of where the gas is going to go when you're looking at the siting and then say, oh, it doesn't matter.

[00:46:40] Speaker 04:
We have no idea for this Section 7 versus Section 3 analysis.

[00:46:44] Speaker 04:
That's just arbitrary decision making.

[00:46:46] Speaker 04:
In terms of whether eminent domain was voluntarily acquired here, my co-counsel represented at least 20 clients who

[00:46:54] Speaker 04:
had to negotiate agreements with their proverbial gun to their head and he's just one attorney representing a small portion of landowners along this pipeline that where things were voluntarily agreed to.

[00:47:07] Speaker 04:
The point about the city of Weymouth, what the court said in Weymouth was

[00:47:11] Speaker 04:
Petitioners have not identified why granting the certificate in this case would not still advance the public convenience and necessity even if the portion of the gas is diverted for export.

[00:47:22] Speaker 04:
Well the petitioners in this case have identified a reason and the reason is that if you use export as a basis for public convenience and necessity when you have eminent domain, you have a problem because export is not necessarily a public use nor has eminent domain been conferred on pipelines for export under section three.

[00:47:40] Speaker 05:
Well, when I was discussing with counsel for intervener paragraph 34, this is in the end of a hearing order, didn't the commission pretty much respond in paragraphs 35 and 36, rejecting basically petitioner's argument here, pointing out the importance to the grid, the demand, and it was aware that

[00:48:11] Speaker 05:
as it says, nexus continues to market the unsubscribed capacity.

[00:48:16] Speaker 05:
So I mean, the commission was aware of what I'll call your worst case scenario.

[00:48:22] Speaker 05:
but nevertheless went ahead, even though it was only 59% at the time.

[00:48:28] Speaker 04:
So as to those points, first the Commission's findings are belied by the facts, the fact that Nexus had been marketing this project for seven years before it came before the Commission.

[00:48:39] Speaker 04:
The Commission also fails to reference that there were 11 T-taps that were originally part of the original project that aren't being used.

[00:48:45] Speaker 04:
and also that there's like extra 30,000 horsepower of compressor stations that are being built unnecessarily.

[00:48:51] Speaker 04:
What the commission also doesn't mention is the other thing that's driving this besides building a pipeline on spec to serve export needs is this 14% return on equity that sweetens the pot.

[00:49:01] Speaker 04:
This court in Appalachian Voices affirmed a 14% return on equity for a fully subscribed pipeline.

[00:49:07] Speaker 04:
Here that same cookie cutter 14% is being used to justify a partially subscribed pipeline and the commission,

[00:49:14] Speaker 04:
The reasoning is the same in both.

[00:49:18] Speaker 04:
And that's irrational decision making too.

[00:49:20] Speaker 04:
So that's just another factor that's kind of lurking beneath the surface that's also driving some of these decisions.

[00:49:28] Speaker 04:
And the last point with regard to the eminent domain, the commission very summarily in footnote 116 dismissed the arguments

[00:49:37] Speaker 04:
as in paragraph 46 of the rehearing order, it basically said we've addressed these eminent domain challenges.

[00:49:46] Speaker 04:
It cites a couple of cases that, again, fully subscribe pipelines, no challenges related to export, citing the Tennessee gas versus Thatcher case,

[00:49:58] Speaker 04:
which involved, that was the first challenge to the use of eminent domain under the Natural Gas Act where the court said, well yes, of course this is a public use because the gas is being used for ultimate consumption to the public.

[00:50:11] Speaker 04:
It didn't address export and it didn't even address the types of scenarios we have in today's environment where the gas is going all over the place.

[00:50:18] Speaker 04:
You don't even know if it's going to be used for consumption.

[00:50:21] Speaker 04:
The commission, again, that finding is subject to de novo review anyway, but it would have to be subject to some kind of review because there's no decision there.

[00:50:31] Speaker 04:
Our arguments were summarily dismissed without any analysis or any attempt to even show how those cases related to the facts of this case.

[00:50:41] Speaker 04:
And we would ask this court to vacate the certificate and find that this pipeline results in unconstitutional taking of property.

[00:50:51] Speaker 04:
Thank you.

[00:50:51] Speaker 05:
Thank you.

[00:50:52] Speaker 05:
We'll take the case under advisement.