Appeals court: pipeline approval process can’t ignore property owners’ rights

Since the founding era, the Supreme Court has referred to the government’s power of eminent domain—the power to take private property from its rightful owner—as the “despotic power.” While this power can be used for good, to build public roads and other necessary public infrastructure, it is also easily abused. That’s why the Constitution forbids its exercise except for a public use, with payment of just compensation, and with due process.

A few weeks ago, the D.C. Circuit Court of Appeals held that the Federal Energy Regulatory Commission, a federal agency that oversees permitting for energy projects like interstate pipelines, has fallen short of this commitment. Instead of a fair process for landowners to assert their property rights, the agency created a bureaucratic roadblock delaying consideration of landowners’ rights until it was too late.

Gas Pipeline
Photo courtesy of Max Phillips.

This issue has arisen because of increased pipeline construction in response to the natural gas boom. Under a federal statute, FERC approval gives pipeline companies the power to use eminent domain to acquire property or easements for construction.

Predictably, this has generated much conflict, with landowners, tribes, and environmentalists objecting to the siting of pipelines. In the market, such conflicts could be worked out amicably. A pipeline company could only acquire land by offering the owner more than he values that land, whether as a home, farm or other use. If a pipeline would harm habitat, watersheds, or other features valued by conservationists, they could purchase the land or an easement to preserve those values, even if it means no pipeline. But eminent domain circumvents the market process by giving the government or, more controversially, private companies the power to simply take land regardless of the owner’s wishes and the land’s value to others.

It should come as no surprise, therefore, that landowners and others object where they perceive the limits of eminent domain as being flouted. Yet few of these cases have proceeded. This is because landowners are required to file reconsideration petitions with FERC before they can go to court.

In practice, FERC has used this reconsideration process to block landowners from asserting their rights. The agency routinely issues “tolling orders” purporting to give itself unlimited time to decide whether to hear a landowners’ plea, while denying judicial review in the meantime. In declaring this practice unlawful, the D.C. Circuit summed up the basic unfairness.

[O]ver the last twelve years, the Commission issued a tolling order in all thirty-nine cases in which a landowner sought rehearing in a proceeding involving natural gas pipeline construction. . . The use of these tolling orders has real-world consequences. In practice, they can prevent aggrieved parties from obtaining timely judicial review of the Commission’s decision. . . They are not final enough for aggrieved parties to seek relief in court, but they are final enough for private pipeline companies to go to court and take private property by eminent domain. And they are final enough for the Commission to greenlight construction and even operation of the pipelines. Tolling orders, in other words, render Commission decisions akin to Schrödinger’s cat: both final and not final at the same time.

The D.C. Circuit’s decision may not be the final word, however. Last week, the court agreed to stay the effect of its decision to give FERC time to ask the Supreme Court to review the case.

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