Eminent domain for a redundant Ohio natural-gas pipeline?

Blessed with abundant natural resources and the technologies to put them to good use, the United States has become the undisputed global leader in energy production.

By marshaling the combined forces of hydraulic fracturing (fracking), horizontal drilling, and seismic imaging, the U.S. has turned the energy world upside-down, reducing the once-mighty lords of OPEC to little more than back-alley hustlers, just trying to stay in the game.

The Shale Revolution unfolded so rapidly, however, that the U.S. was caught with an infrastructure that wasn’t up to the job of transporting oil and natural gas from the wellhead to points of distribution, some of them thousands of miles away. Pipelines are far and away the safest and cheapest way to do this, and, by giving the green light to the Keystone XL and Dakota Access pipelines, the Trump administration has shown that it means business when it says it’s “putting America first.”

But not all pipelines are created equal, and one proposed underground transmission line in the Midwest appears to be a project in search of a purpose. The $2 billion 255-mile Nexus pipeline is supposed to transport up to 1.5 billion cubic feet of high-pressure natural gas per day from the Marcellus and Utica shale through northern Ohio into southeastern Michigan before turning east and terminating in Ontario’s Union Gas Dawn hub, the second-largest underground natural-gas storage facility in North America. From there, the gas will be exported overseas. Houston-based Spectra Energy, Alberta-based Enbridge Energy, and Michigan’s DTE Electric are the project’s developers, and, in a recent twist, Enbridge is in the process of acquiring Spectra.

A White Elephant

But what would appear to be a welcome addition to America’s energy infrastructure is, upon closer inspection, a white elephant designed to enrich investors at the expense of landowners while providing little, if any, electricity to the people in Ohio and Michigan living along its path. What’s more, the project is redundant because it competes directly with the 700-mile ET Rover pipeline (developed by Energy Transfer Partners), which, following a similar route as Nexus, will funnel 3.25 billion cubic feet of natural gas per day from the Appalachian Basin to Michigan.

Interstate natural-gas pipelines are under the jurisdiction of the Federal Energy Regulatory Commission (FERC). On Feb. 3, FERC granted a “certificate of public convenience and necessity” to the ET Rover pipeline, effectively clearing the way for construction of the project to begin. Rover is scheduled to begin partial service in July and be fully operational by the end of the year.

Tellingly, FERC delayed issuing a certificate for Nexus in light of growing opposition to the project. In fact, fearing the pipeline will come too close to homes, schools, and a city park, officials in Green, Ohio won’t allow Nexus surveyors on city property and won’t sell easements until forced to do so.

Eminent Domain

Attorney Carolyn Elefant was retained by the City of Oberlin, Ohio to argue against FERC’s granting a certificate to Spectra for Nexus. In a Jan. 31 letter to FERC, Elefant questioned why landowners should be subjected to eminent domain for a project for which there is no apparent public need:

Before the Commission can issue a certificate, it must determine whether there is a public need for the project. Need is not a discretionary matter, it is a statutory finding required by Section 7 of the Natural Gas Act. Moreover, because Section 7f (h) empowers a pipeline to exercise eminent domain to acquire rights necessary to construct and operate the project, absent a finding of public need, the resulting taking would be unconstitutional. That a large portion of the project will serve Canada raises questions about the use of eminent domain for a pipeline that will not serve domestic customers.

Elefant further pointed out that the Nexus pipeline had commitments from just seven customers, utilizing no more than 55 percent of the pipeline’s daily shipping capacity. Two of those customers are parties to the pipeline, DTE Energy and Union Gas, which operates the Dawn hub in Ontario. She also noted that Spectra seeks a 14 percent return on equity for the project – “a rate the Commission has deemed excessive for other projects with similar capital structures.”

“Finally,” she concluded, “the Commission must consider that the NEXUS pipeline will impact hundreds of residential, agricultural and developable parcels, likely necessitating an excessive exercise in eminent domain. Serious policy questions remain as to whether eminent domain is justified to support an undersubscribed pipeline that will serve (at least in part) a foreign country and return generous profits to private shareholders without concomitant benefits to impacted communities and the broader public.”

Stranded Assets

Eminent domain is highly disruptive under the best of circumstances. Using this powerful tool to construct what promises to be a grossly underutilized pipeline is an affront to property rights. Before stepping down as Commissioner of FERC on Feb. 3, Norman C. Bay pointed out that the public is ill-served by redundant pipelines:

Pipelines are capital intensive and long-lived assets. It is inefficient to build pipelines that may not be needed over the long term and that become stranded assets. Overbuilding may subject ratepayers to increased costs of shipping gas on legacy systems.

Even Nexus’s partners have cold feet. In the event the project proves unprofitable, DTE Energy, the Detroit utility, has asked the Michigan Public Service Commission to allow it to pass the costs of the pipeline on to its ratepayers. Adding to the project’s woes, energy giant TransCanada is planning a competing pipeline in Canada and is prepared to charge shippers less to transport gas through the region.

For now, the project is in limbo, because FERC’s five-member commission currently lacks a quorum necessary to hand down decisions. Only two of the five seats are filled, and it is expected that the Trump administration will take a few more months to fill the three remaining seats.

That local resistance has succeeded in slowing down NEXUS is largely the work of a grassroots group Coalition to Reroute Nexus (CoRN). Not opposed to the pipeline per se, CoRN tried unsuccessfully to get FERC to reroute Nexus away from densely populated areas. CoRN is now urging affected landowners not to grant easements on their property.

“We are suggesting that landowners not grant easements or let surveyors on their property, because, relative to Nexus, time is our friend and their foe,” says Jon Strong, who founded CoRN in 2014. “Time is on our side because, the longer we hold off construction, the more time for Nexus to unravel of its own dead weight.”

Like Virginia’s Americans for Personal Property, Energy & Landowners (APPEAL), which arose in opposition to the use of eminent domain in the construction of the proposed Atlantic Coast pipeline, CoRN foregoes the violence and vandalism that marked the – ultimately futile – resistance to the Dakota Access pipeline. CoRN – https://www.facebook.com/MedinaNOnexus/ — and APPEAL – http://www.notaking.org — seek to strengthen the position of landowners threatened with the use of eminent domain.

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About the Author: Bonner Cohen, Ph. D.

Bonner Cohen, Ph. D.

Bonner R. Cohen, Ph. D., is a senior policy analyst with CFACT.

  • Leatra Harper

    Standing Rock is not ultimately futile. The jury is not in. That statement was in error. The fatal flaw of fracking and its infrastructure is the the elephant in the room – global climate change and what fracking and pipelines for export through LNG terminals will do to the our children and grandchildren. The costs to DTE are not the REAL costs – it will be to our climate and our children!

  • ddk68

    This is the wrong group’s page to post “global climate change” as a reason to not build a pipeline.