Week Ending June 12, 2020

FERC Final Rule Aims to Address Court Uneasiness with Gas Pipeline Rehearing Issues

This Article Appears as Published in Foster Report No 3303
FERC Final Rule Aims to Address Court Uneasiness with Gas Pipeline Rehearing Issues

In an apparent attempt to get out in front of a court ruling on its use of tolling orders, FERC issued a final rule to change its regulations so that natural gas pipeline construction would have to wait for an order on rehearing when a Natural Gas Act (NGA) certificate order is challenged.

A few observers questioned the effectiveness of the order and whether it will appease the judges on the U.S. Court of Appeals for the D.C. Circuit who posed harsh questions on FERC’s practices of dealing with rehearing requests in pipeline approvals.

A primary point of concern that arose during an April 27 oral argument on the underlying case was judges’ uneasiness with pipelines being able to use eminent domain authority to condemn land for pipeline construction while rehearing requests are pending. That dynamic leaves landowners and others who seek rehearing in administrative limbo under a “Kafkaesque regime,” Judge Patricia Millett wrote in her August 2019 concurrence on the case involving Transcontinental Gas Pipe Line Corp.

“This ruling does not change that,” said Carolyn Elefant, an attorney who represents landowners. She viewed the final rule as “yet another attempt to sway the D.C. Circuit and avert an unfavorable decision.” Previous attempts include procedural changes by Chairman Neil Chatterjee to address rehearing requests when landowners are involved within 30 days to avoid use of tolling orders, which provide more time to issue a final order.

Commissioner Richard Glick made a similar point about the final rule not addressing eminent domain authority that is conveyed with NGA certificate orders in his partial dissent and concurrence with the final rule. He said the rule is a step in the right direction, but holding pipeline construction authorization until a rehearing order is issued does not address the root of the problem highlighted by Millett, which is the exercise of eminent domain by pipelines while a rehearing request is pending.

“Rather than remaining silent on this situation, we ought to do everything in our power to address it and ensure that certificate holders are not permitted to go to court before landowners,” Glick said. He suggested adoption of a practice where NGA certificate orders are stayed, or held from taking effect, pending FERC action on timely filed requests for rehearing.

Judges at the D.C. Circuit made similar suggestions during the oral argument. They repeatedly questioned FERC Trial Attorney Robert M. Kennedy about the unfairness of tolling orders that halt a final order from legal scrutiny while pipelines can use the certificate order to obtain land for pipeline construction. During the lengthy oral argument before the full panel of 11 judges, a clear majority of the judges probed ways to have a more equitable process for landowners while staying within the boundaries of the NGA and legal precedent.

Judge Millett’s concurrence preceded the rare en banc rehearing at the D.C. Circuit, and in her lengthy statement she referred to the practice of tolling orders buying time before a final order can be appealed by landowners or environmental groups, while eminent domain proceedings and pipeline construction can begin.

Glick noted that while the final rule would prevent construction from starting until a rehearing order is issued, Millett said her concerns are not limited to pipeline construction. “To the contrary, Judge Millett pointed repeatedly to the exercise of eminent domain prior to rehearing as an example of how the Commission’s use of tolling orders ‘runs roughshod over basic principles of fair process,’ “Glick said.

FERC is aware of the concerns highlighted by Millett in the court’s August 2019 ruling, Kennedy told the judges during oral argument.

Following the oral argument, analysts said they believe a majority of the court is in favor of requiring some type of modification to the current process, in which a tolling order suspends the finality of an NGA certificate order from FERC for legal appeals but allows pipeline construction to take place.

FERC halted the latter element with the new rule, which is set to become effective 30 days after publication in the Federal Register. The rule “ensures that construction of an approved natural gas project will not commence until the Commission has acted upon the merits of any request for rehearing,” FERC said.

The June 9 final rule (RM20-15) was issued without seeking comment or input and was filed with the D.C. Circuit as a supplemental submission in Transco case (Allegheny Defense Project et. al. v. FERC, No. 17-1098) where parties are challenging FERC’s approval of Transco’s Atlantic Sunrise project. The final rule, which FERC issued as Order No. 871, builds on FERC recent actions to prioritize and expedite action on pipeline requests for rehearing that implicate landowner rights, Kennedy told the court in the supplemental filing.

Commissioner Bernard McNamee concurred and issued a brief statement that he supports the rule to ensure that construction of pipelines or LNG facilities cannot begin until the rehearing process is complete. “With this final rule, the Commission is exercising its limited authority under the Natural Gas Act to balance the interests of individual landowners with those of certificate holders of the natural gas projects that will serve the public,” McNamee said.

Chatterjee said the rule builds on previous efforts to improve procedural protections for landowners involved in natural gas projects. The short final rule adopts new regulations that preclude construction authorizations for projects that received certificates under Section 3 and Section 7 of the NGA when rehearing requests are pending, regardless of land ownership.

Throughout the efforts to address legal concerns and the interests of landowners, Chatterjee has said that there is nothing nefarious about FERC’s use of tolling orders, but the final resolution of difficult matters can take more time than the 30 days allotted under the NGA. He continued that theme in a statement on the final rule. “These are complex issues, with a diverse array of stakeholder input, but I remain firmly committed to doing what we can to make the FERC process as fair, open, and transparent as possible for all those affected while the Commission thoroughly considers all issues,” Chatterjee said.

The Interstate Natural Gas Association of America (INGAA) is concerned about the final rule on a couple different points and is reviewing it, a spokesperson for the pipeline group said. Although the final rule aims to address issues around construction before the rehearing process is completed, it does not address the length of that process. The lack of a clear timeline for FERC to resolve issues on rehearing will create uncertainty for pipeline owners and those who depend on timely development of new infrastructure, the INGAA spokesperson said.

“We are also concerned that the issuance of an instant final rule did not provide the public and regulated entities with the opportunity to provide comment on FERC’s proposal. An issue as important as this one would likely have benefited from a more deliberative rulemaking process,” the INGAA spokesperson said.

The group will review the rule and its ramifications, and consider its options.

The lengthy oral argument that was held by conference call had multiple judges on the D.C. Circuit posing questions and possible steps to address the rehearing process and issues raised in Millett’s concurrence. Pairing a stay of construction or otherwise making a pipeline approval order not final when rehearing is granted for further consideration was one option addressed, along with having FERC only act on rehearing requests with “genuine” orders that seek more information or signal an intend to modify an NGA certificate order was another.

Judges Gregory Katsas and Merrick Garland were two of the judges that pursued those possibilities with attorneys. Chief Judge Sri Srinivasan and others tried to reconcile possible steps within the bounds of NGA Section 717(r)(a) and Section 717(r)(b), where the rehearing process is spelled out. Judges Neomi Rao and Cornelia Pillard were among those who asked questions around tolling orders compared with true rehearing orders that alter the merits of a FERC certificate order at a later date.

Landowner attorney Siobhan Cole, of White and Williams, said the Commission could take any number of steps once rehearing is granted, but what it is doing now is barring legal review with a tolling order, issuing a rehearing order much later and the aggrieved parties are stuck in administrative limbo. Landowners seeking to have a FERC certificate order reviewed by a district court when eminent domain proceedings are going on are told that such reviews are not allowed under the NGA, Cole told Rao.

The day after the oral argument, Rep. Jamie Raskin (D-Md.), chairman of the House Subcommittee on Civil Rights and Civil Liberties, released preliminary results of an investigation, with a statement and video comments from different parties that FERC’s tolling order process is not fair for landowners.

The final rule states that even if a project has all other certifications and permissions to begin construction, it must wait to do so until the Commission either acts on rehearing requests or the 30-day time limit passes with no requests for rehearing.

Elefant pointed out the rule would only apply to a small group of projects that have all of their other authorizations and permits in hand. In most of the cases she has handled or followed, construction could not start until several months after a certificate order is issued because of outstanding permits or survey work that is needed to prepare site-specific plans, she said. The universe of cases where a project owner is ready to start construction soon after a certificate order is issued is small and tend to be simple projects that would not be challenged anyway, Elefant said in response to questions on the rule.

That is one factor that she believes weighs in favor of pipelines not challenging the rule – it only affects a narrow sphere of cases.

Attorney John Stoviak argued for intervenor Transco during the D.C. Circuit oral argument, responding to questioning on what would happen if FERC grants rehearing for further consideration and that makes an NGA certificate order non-final for legal purposes. The problem is that in eminent domain proceedings, state and federal permits would be held up, creating the possibility that a few months of delay for a final order on rehearing could extend the timeline for construction by a year or more, Stoviak said. Construction windows for following the Endangered Species Act or other statutes could drag out the process of pipeline construction further, he said.

That is still a possibility, since the D.C. Circuit has not issued a decision in the case.

A spokesman for Transco owner Williams Companies said the Atlantic Sunrise project has been operating at 100% capacity since it was placed in service more than 18 months ago. “The project will continue transporting this much needed supply of natural gas while the D.C. Circuit considers whether to provide judicial guidance on FERC’s practice of issuing tolling orders, which FERC has attempted to address in its Order No. 871,” the spokesman said.

Christine Tezak of ClearView Energy Partners said the timing and content of the final rule suggests that FERC expects an adverse ruling and the rule “is a move to secure an outcome more to its liking.” The order from FERC “suggests the Commission has abandoned hope that its current process will remain unaltered, consistent with our view that this outcome seemed unlikely,” Tezak said.

ClearView believes that Order 871 was issued to preserve the tolling order process, since 30 days is a short time to address lengthy rehearing requests, and prevent pipeline certificates from being stayed during the rehearing process. “We also think that the FERC’s action lowers risk that it could lose the ability to toll rehearing action across all its activities, including the considerably more numerous electric proceedings it acts on each year,” Tezak said.

In its supplemental submission to the court, FERC did not ask the D.C. Circuit to hold the case in abeyance or not issue a ruling, Tezak added. The order does not preclude the court from issuing a ruling that has a more disruptive effect on Commission processes, she said, expecting a ruling from the court this summer.

By Tom Tiernan ttiernan@fosterreport.com

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