United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 6, 2019 Decided September 6, 2019 

No. 18-1248 

CITY OF OBERLIN, OHIO, 

PETITIONER

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

NEXUS GAS TRANSMISSION, LLC, 

INTERVENOR

Consolidated with 18-1261 

On Petitions for Review of Orders of 

the Federal Energy Regulatory Commission 

Carolyn Elefant argued the cause for petitioners. With her 

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

Carol J. Banta, Senior Attorney, Federal Energy 

Regulatory Commission, argued the cause for respondent. 

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

and Robert H. Solomon, Solicitor. 
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David A. Super argued the cause for intervenor. With him 

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

Before: ROGERS, SRINIVASAN, and WILKINS, Circuit 

Judges. 

 Opinion for the Court filed by Circuit Judge WILKINS. 

Concurring Opinion filed by Circuit Judge ROGERS. 

 WILKINS, Circuit Judge: In reviewing an agency’s 

justifications for its actions, principles of administrative law 

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

we must not micromanage. Agencies are the experts and 

requiring full exposition at every turn would impede their 

ability to carry out their specialized statutory duties. On the

other hand, we must insist on reasoned justifications. 

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

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

Coalition to Reroute Nexus, an organization of landowners. 

They ask us to vacate the Federal Energy Regulatory 

Commission’s order authorizing Nexus Gas Transmission, 

LLC, to construct and operate an interstate natural gas pipeline 

and exercise the right of eminent domain to acquire any 

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

Commission’s order denying their requests for rehearing. In 

short, Petitioners complain that the Commission’s orders 

allowed the pipeline to transect their properties, to their 

properties’ detriment, and gave Nexus the right to condemn 

certain easements over their objections. 
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 Petitioners raise many arguments, the vast majority of 

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

Commission failed to adequately justify its determination that 

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

serving foreign customers as evidence of market demand for 

the interstate pipeline. Accordingly, we remand without 

vacatur to the Commission for further explanation of this 

determination. 

I. 

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

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

Commission to regulate the transportation and sale of natural 

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

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

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

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

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

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

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

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

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

original). 

 Section 7 of the Act requires an entity seeking to construct 

or extend an interstate pipeline for the transportation of natural 

gas to obtain from the Commission a “certificate of public 

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

policy statement, the Commission set forth the criteria it 

considers in reviewing an application for a Section 7 certificate. 

Certification of New Interstate Nat. Gas Pipeline Facilities, 88 

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

(Feb. 9, 2000), further clarified, 92 FERC ¶ 61,094 (July 28, 
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2000) (“Certificate Policy Statement”). First, an applicant must 

demonstrate that it is “prepared to develop the project without

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

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

Commission will issue a certificate of public convenience and 

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

unserved market demand) outweigh its adverse effects (such as 

a deleterious environmental impact on the surrounding 

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

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

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

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

U.S.C. § 717f(h). 

 As part of the Section 7 certificating process, before 

approving an interstate gas pipeline the Commission must 

complete an environmental review of the proposed project 

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

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

requisite significance (including the issuance of a Section 7 

certificate), NEPA requires an agency to prepare an 

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

agency must “identify the reasonable alternatives to the 

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

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

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

Cir. 1999) (citation omitted). 

 Lastly, we note that the Commission has limited authority 

to regulate the import and export of natural gas under Section 

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

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

3 provides that no person shall import or export natural gas 

“without first having secured an order of the Commission 
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authorizing it to do so,” and it instructs that the Commission 

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

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

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

Congress transferred Section 3’s regulatory function to the 

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

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

Subsequently, the Secretary delegated back to the Commission 

the narrow authority to approve or disapprove the construction 

and siting of facilities where natural gas will be imported or 

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

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

Secretary retains exclusive authority to approve or disapprove 

the import and export of natural gas. Id. 

II. 

On November 20, 2015, Nexus sought from the 

Commission authorization under Section 7 to build and operate 

approximately 257 miles of a new natural gas pipeline to 

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

Appalachian Basin shale gas to consuming markets in northern 

Ohio, southeastern Michigan, and Ontario, Canada. The 

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

Hanover Township in Columbiana County, Ohio, to Ypsilanti 

Township in Washtenaw County, Michigan. In marketing the 

pipeline from 2012 through 2015, Nexus entered into precedent 

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

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

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

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

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

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

the Canadian shippers are for a total of 260,000 dth/day. Id. 
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 On August 25, 2017, the Commission issued an order 

granting Nexus a Section 7 certificate of public convenience 

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

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

the Commission issued an order denying Petitioners’ requests 

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

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

Commission made three determinations that are especially 

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

precedent agreements were “the best evidence” that the 

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

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

the condition that Nexus design its initial customer rate based

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

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

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

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

Nexus a Section 7 certificate but before it denied Petitioners’

requests for rehearing), Nexus filed a condemnation action, 

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

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

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

exercise eminent domain to condemn certain easements over 

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

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

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

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

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

 In September 2018, Petitioners filed the instant matter. 

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

2017, granting Nexus a Section 7 certificate, as well as its order 
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of July 25, 2018, denying Petitioners’ requests for rehearing. 

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

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

for lack of subject matter jurisdiction, which, for reasons 

explained below, we denied. 

III. 

We have jurisdiction over the petitions pursuant to the 

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

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

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

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

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

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

that landowners like Petitioners, who are “forced to choose 

between selling to a FERC-certified developer and undergoing 

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

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

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

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

Before proceeding, however, we must also discharge our 

“independent duty to ensure that at least one petitioner has 

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

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

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

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

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

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

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

In its motion to dismiss submitted after oral argument, 

Nexus argues that Petitioners no longer suffer redressable 
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injuries in fact. According to Nexus, this is because, since oral 

argument, Petitioners and Nexus executed easement 

agreements that settled the issue of compensation for Nexus’s 

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

6, and thereafter the parties entered into joint notices and 

stipulations of dismissal in the condemnation action in the 

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

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

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

an agreement with a pipeline seeking to access her property or 

have her property condemned. See Gunpowder Riverkeeper v. 

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

made subject to eminent domain by a decision of the 

Commission has been injured in fact because the landowner 

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

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

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

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

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

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

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

ultimately will compensate [petitioner] for its property does 

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

Accordingly, the fact that the parties reached an agreement as 

to compensation for Nexus’s takings does nothing to vitiate 

Petitioners’ injuries to their property interests.1

 In addition, 

Petitioners’ injuries are directly traceable to the Commission’s 

orders (because the orders permitted the pipeline to transect 

1

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

executed explicitly provide that the dismissal of the claims in the 

condemnation action “shall have no application” to Petitioners’

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

(quoting Exs. 3, 7). 
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their land and authorized Nexus to condemn it), and if we 

vacate those orders Petitioners’ injuries are likely to be 

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

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

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

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

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

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

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

bring the petitions. 

IV. 

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

arbitrary and capricious or otherwise contrary to law. TNA 

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

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

or inadequate, the court must remand for an adequate 

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

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

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

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

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

A. 

 Petitioners argue that the Commission’s finding that 

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

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

evidence. In support of this argument, Petitioners wage a threepronged attack. 

 First, Petitioners assert that the Commission contravened 

its Certificate Policy Statement by relying on Nexus’s 
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precedent agreements for “a paltry 59 percent of new capacity” 

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

Specifically, Petitioners contend that the policy statement only 

allows precedent agreements to serve as “strong evidence of 

market demand” when they represent “most of the new 

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

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

fundamentally misguided: the Certificate Policy Statement 

imposes no bright-line rule about when precedent agreements 

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

out a flexible inquiry that allows the Commission to consider a

wide variety of evidence to determine the public benefits of the 

project. And here, the Commission engaged in that broadranging inquiry reasonably. Although the precedent 

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

Commission determined that existing pipelines could not 

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

that analysis, the Commission reasonably concluded under the 

Certificate Policy Statement that the precedent agreements – 

which firmly established that there was more demand for 

natural gas in the Nexus pipeline’s delivery region than 

existing pipelines could meet – were the best evidence of 

project need. 

 Second, Petitioners assert, Nexus’s precedent agreements 

are not meaningful evidence of project need because half of 

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

to Petitioners, this is problematic because affiliate agreements 

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

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

Commission rationally explained that it fully credited Nexus’s 

precedent agreements with affiliates because it found no 

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

and because Nexus bears the risk for any unsubscribed 
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capacity. See J.A. 1125. Moreover, as the Commission 

explained, when it ended its policy of requiring pipelines to 

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

significance of whether the [precedent agreements] are with 

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

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

recognized that “it is Commission policy to not look behind 

precedent or service agreements to make judgments about the 

needs of individual shippers.” Myersville Citizens for a Rural 

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

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

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

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

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

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

pay for such service under a binding contract are not lessened 

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

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

13, 2017)) (alteration in original). 

 Third, Petitioners argue, Nexus’s precedent agreements 

are not strong evidence of market demand because a substantial 

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

because the Secretary of Energy authorizes exports under 

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

agreements for export “to justify project need under Section 7 

[,] which governs certificates for projects in interstate 

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

because Section 7 confers on a certificate holder the right to 

exercise eminent domain, crediting export agreements toward 

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

Clause, as a private pipeline selling gas to foreign shippers 

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

the meaning of the Fifth Amendment. Id. at 36 (quoting U.S.
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CONST. amend. V (“[P]rivate property [shall not] be taken for 

public use, without just compensation.”)). 

 This argument raises legitimate questions, which the 

Commission has heretofore failed to adequately answer. On the 

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

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

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

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

agreements from its Section 7 analysis of project need, Nexus 

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

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

because the Commission never considered whether the public 

benefits of the Nexus pipeline would outweigh its adverse 

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

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

may affirm its finding of public convenience and necessity only

if the Commission’s inclusion of the export precedent 

agreements in its analysis was proper. 

 But the Commission never explained why it is lawful to 

credit demand for export capacity in issuing a Section 7 

certificate to an interstate pipeline. In response to Petitioners’ 

argument that it is not, the Commission simply recited its 

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

subscribed capacity is for domestic consumption; (2) all 

shipper commitments have secondary delivery rights within the 

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

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

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

to predicate a Section 7 finding of project need on precedent 

agreements with foreign shippers serving foreign customers. 

Section 7 states that the Commission may issue a certificate of

public convenience and necessity for “the transportation in 
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interstate commerce,” § 717f(c)(2) (emphasis added), and we 

have explicitly refused to “interpret ‘interstate commerce’” 

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

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

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

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

(reaffirming Border Pipe Line). 

 Moreover, in response to Petitioners’ argument that 

relying on demand for export in issuing a Section 7 certificate

runs afoul of the Takings Clause, the Commission merely 

stated that it has previously addressed this issue and offered 

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

just one of the FERC cases the Commission cites addressed the 

specific question of whether predicating a Section 7 finding of

project need on precedent agreements for export contravenes 

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

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

that single case, the Commission relied on the inadequate 

explanation that such a circumstance does not present a 

Takings Clause problem because: once the Commission 

determines that a pipeline is required by the public convenience 

and necessity, Section 7 authorizes the certificate holder to 

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

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

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

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

question of whether – given the fact that Section 7 authorizes 

the use of eminent domain – it is lawful for the Commission to 
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credit precedent agreements for export toward a finding that a 

pipeline is required by the public convenience and necessity.2

 

 When pressed on this issue at oral argument, the 

Commission again did not explain why it is lawful to credit 

precedent agreements for export in issuing a Section 7 

certificate for the construction and operation of an interstate

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

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

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

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

explanatory value with respect to the question of why it is 

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

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

precedent agreements for export. 3

 Accordingly, we remand to the Commission for further 

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

2

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

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

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

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

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

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

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

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

export constitutes a public use within the meaning of the Takings 

Clause. 

3

 To the extent that Petitioners argue that the Commission can never 

lawfully issue a Section 7 certificate where a pipeline has precedent 

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

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

the public convenience and necessity independent of any of its 

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

has not made any finding to that effect in this case. 
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the precedent of this Court and the Supreme Court – it is lawful 

to credit precedent agreements with foreign shippers serving 

foreign customers toward a finding that an interstate pipeline is 

required by the public convenience and necessity under Section 

7 of the Act.

B. 

Petitioners also attack the Commission’s approval of the 

specific formula that Nexus used to design its initial consumer

rate. 

As we had occasion to discuss relatively recently, one of 

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

pipelines charge their customers. See generally Sierra Club, 

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

Commission reviews a pipeline’s proposed initial rate and will 

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

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

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

permanent “just and reasonable” rates are established pursuant 

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

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

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

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

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

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

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

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

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

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

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

accept Nexus’s proposal. Rather, it approved Nexus’s proposed 
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ROE of 14% but only on the condition that Nexus design its 

initial rate according to a hypothetical capital structure of 50% 

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

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

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

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

Sierra Club, 867 F.3d at 1378. 

 But Petitioners are not satisfied with the Commission’s 

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

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

as compared to the returns on other utility investments that state 

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

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

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

ratio is appropriate for the Nexus pipeline specifically. 

Petitioners point out that the Commission, in its order issuing

Nexus a Section 7 certificate, supported its approval of this 

formula with nothing more than citation to FERC precedents 

demonstrating that the Commission has previously approved a 

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

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

denying Petitioners’ requests for rehearing, the Commission 

merely: (1) offered the generic observation that relatively 

higher ROE’s are appropriate for new market entrants like 

4

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

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

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

ultimately concede, however, “Sierra Club allows the Commission 

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

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

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

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

(emphasis in original) (internal citation omitted)). 
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Nexus because they face greater business risks than their 

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

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

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

Commission explained “why a flat 14 percent return should 

apply to all new pipelines irrespective of geographic location,

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

 In response, the Commission reiterates that its approval of 

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

the Nexus pipeline because new pipelines are inherently 

riskier, and Nexus bears responsibility for any unsubscribed 

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

 In Sierra Club, when considering the precise question 

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

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

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

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

skeptical that a bare citation to precedent, derived from another 

case and another pipeline, qualifies as the requisite ‘substantial 

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

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

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

structure] under one circumstance does not automatically 

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

reach this issue because we found that petitioner never properly 

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

hypothetical capital structure more generally.” Id.

 Here, by contrast, Petitioners, in their requests for 

rehearing and opening brief, argued explicitly that the 

Commission’s bare citation to precedent is inadequate to 

support its finding that a 14% ROE based on a 50% equity and 
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50% debt capital structure is appropriate for the Nexus 

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

properly before us. 

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

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

Petitioners suggest. The Commission did not simply cite its 

precedent but applied its “established policy” balancing both 

consumer and investor interests to the particular pipeline at 

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

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

from rates under NGA sections 4 and 5, specifically how 

“Congress gave the Commission the discretion in section 7 

certificate proceedings to approve initial rates that will ‘hold 

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

protected’ while awaiting adjudication of just and reasonable 

rates under the more time-consuming ratemaking sections of 

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

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

different risks confronting existing pipelines and the greenfield 

pipeline at issue, which faces increased business risks 

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

constructing and servicing new routes because it does not have 

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

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

Petitioners’ argument that Nexus faced no risk for the 

unsubscribed pipeline capacity because “Nexus faces a very 

real risk that any unsubscribed capacity will reduce its ability 

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

that adjusting Nexus’s proposed hypothetical capital structure 

reduced the impact of the ROE and thereby “ensures that 

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

pipelines.” J.A. 1236. It concluded, on the record before it, that 
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an ROE of 14% with an increased debt level would “hold the 

line.” J.A. 1236. 

Notably, the Commission even provided an example of 

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

service would be required to use the ROE underlying its 

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

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

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

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

cost and revenue study three years out that would provide data 

by which the Commission and interested parties could 

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

1235. It is true that the Commission never discussed another 

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

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

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

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

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

the Commission’s explanation in response to Petitioners’ 

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

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

Commission “entirely failed to consider an important aspect of 

the problem, offered an explanation for its decision that runs 

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

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

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

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

Accordingly, Petitioners’ attack on the Commission’s 

approval of the specific formula that Nexus used to design its 

initial consumer rate is unsuccessful. 
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C. 

 Finally, Petitioners raise two arguments attacking the 

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

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

 First, Petitioners argue, the Commission impermissibly 

delegated its obligations under NEPA to independently review 

the pipeline’s potential adverse impacts on public safety. 

Specifically, Petitioners contend, within its Environmental 

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

Nexus’s commitment to comply with safety standards 

promulgated by the Pipeline and Hazardous Materials Safety 

Administration, a division of the Department of Transportation 

(“DOT”). 

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

DOT has exclusive authority to establish safety standards for 

natural gas pipelines, see Memorandum of Understanding 

Between DOT and FERC Regarding Natural Gas 

Transportation Facilities, 

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

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

the Commission to reference such standards as a component of 

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

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

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

explained in detail how Nexus’s compliance with DOT 

standards would address the specific safety concerns that 

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

specified in 49 CFR 192 require that pipeline operators 

establish and maintain liaison with appropriate fire, police, and 

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

specific actions Nexus committed to take to account for safety 
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risks that DOT regulations might not fully address. See, e.g., 

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

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

system using a supervisory control and data acquisition 

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

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

doing, it considered DOT regulations in an appropriate fashion.

 Second, Petitioners contend, the Commission arbitrarily 

failed to consider moving the pipeline away from residences 

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

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

not require natural gas pipelines to remain a minimum distance 

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

classification system that grades each segment of a pipeline 

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

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

pipeline segments close to more densely populated areas, to 

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

E. In accordance with this regulatory scheme, the Commission 

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

27. Accordingly, although the Commission may not have 

considered the pipeline’s proximity to buildings and residences

in precisely the way Petitioners would prefer, Petitioners’ 

argument that the Commission arbitrarily failed to consider this 

issue is unfounded. 
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V. 

 Before concluding, we offer a word regarding our remedy. 

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

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

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

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

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

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

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

because we find it plausible that the Commission will be able 

to supply the explanations required, and vacatur of the 

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

pipeline is currently operational. 

* * * 

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

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

remand without vacatur to the Commission for further 

explanation of why it is lawful to credit precedent agreements 

for export toward a Section 7 finding that an interstate pipeline 

is required by the public convenience and necessity. We deny 

the petitions in all other respects. 

So ordered.
 ROGERS, Circuit Judge, concurring. This court has 

recently reaffirmed its understanding that the Commission acts 

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

Section 7 certification of public convenience and necessity 

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

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

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

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

has long regarded Section 3’s public interest standard and 

Section 7’s public convenience and necessity standard as 

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

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

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

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

held the power commission lacked jurisdiction under Section 7 

to regulate a company located in Texas that transported gas 

exclusively to Mexico, drawing on the historical distinction 

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

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

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

interstate commerce definition unambiguously establishes the 

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

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

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

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

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

concluded there was no regulatory gap over imported gas 

entering an existing pipeline because FERC had “plenary and 

elastic” authority under Section 3 to place conditions — 

including conditions substantively equivalent to Section 7 

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

In neither Distrigas nor Border Pipe Line was the issue 

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

Commission has authority under Section 7 to consider in 

certification proceedings precedent agreements with a foreign 

shipper in evaluating market need for a new pipeline to be 
2 

located exclusively within the United States. Whether, absent 

congressional action, a similar workaround as the court applied

in Distrigas, or other approach for concluding the Commission 

had jurisdiction to consider two Canadian shippers’ precedent 

agreements where a significant amount of that gas was 

expected to be used domestically, would be possible remains 

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

need for and the nature of the NEXUS pipeline are supported 

by substantial evidence in the record considered as a whole, 

and the Commission reasonably explained that petitioners 

mischaracterized the extent to which the project may be used 

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

understood, it appears on this record that the question on 

remand is whether the Commission’s “substantial equivalence” 

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

the Commission the opportunity to provide an explanation of 

its authority to rely in Section 7 certification proceedings on

precedent agreements with foreign shippers serving foreign as 

well as domestic customers.