Week Ending May 7, 2021

In Order 871-B, FERC Puts Time Limit on Pipeline Construction Start Following Approval

This Article Appears as Published in Foster Report No 3348
In Order 871-B, FERC Puts Time Limit on Pipeline Construction Start Following Approval

Modifying its rule about when natural gas pipelines can start construction following approval, FERC laid out a policy to withhold construction authorizations while the Commission addresses requests for rehearing of a FERC approval order.

The May 4 order (RM20-15) was criticized by the Interstate Natural Gas Association of America (INGAA) for delaying construction of needed facilities. The delay will increase costs to pipelines while providing little benefit to landowners or other stakeholders, said Joan Dreskin, INGAA senior vice president and general counsel.

The Natural Resources Defense Council (NRDC) sees it differently. With Order 871-B, the leadership at FERC is indicating it will not allow a certificate approved under the Natural Gas Act to be used for construction until all parties have a chance to challenge the decision to approve a project, said John Moore, director of the Sustainable FERC Project within NRDC.

For a long time, before a court stepped in last year to alter the practice, FERC gave pipelines a green light to build facilities while requests for rehearing of orders languished at the Commission, Moore noted in a statement. “This decision is an important sign that FERC is realigning its actions, listening to the concerns of all stakeholders, and pledging to work within the confines of the law,” he said.

The stay of a certificate while any rehearing requests challenging a project are addressed by FERC would at most amount to about 150 days, FERC said in the order.

The issuance of Order 871-B followed the submittal of briefs by the INGAA, individual pipeline companies, states and public interest organizations that responded to a January order from the Commission. That ruling, Order 871-A, sought input on questions posed by FERC and noted that the Commission would address rehearing requests of the initial rule, Order 871. The initial rule was issued without comment or input from parties, just before the U.S. Court of Appeals for the D.C. Circuit stepped in to restrict the use of tolling orders on NGA certificate approvals.

As he did with Order 871-A, Commissioner James Danly dissented on Order 871-B. He indicated that he would prefer to repeal Order 871 in its entirety and instead rely on the rehearing process and appeal provisions as instructed by Congress and guidance from the D.C. Circuit.

Referencing other cases where FERC has altered its pipeline application review process, Danly said the order marks the third time in as many months that the Commission has “dramatically increased the uncertainty faced by the natural gas industry by changing its policies so as to make it harder to rationally deploy capital, accurately assess risk, or predict Commission action.” The other cases involve FERC’s consideration of climate change and greenhouse gas emissions associated with pipeline projects involving Northern Natural Gas Co., and the additional input sought following approval of service to begin on a compressor station for Algonquin Gas Transmission’s Atlantic Bridge project.

“This holding will wreak havoc on the Commission’s administration of other provisions under the NGA” and the Federal Power Act, Danly wrote in his dissenting statement. He posed questions about how FERC may seek further briefing in cases involving natural gas pipeline rate orders or changes to orders under the FPA.

Danly said Order 871-B is unlawful under the Administrative Procedure Act, represents bad policy and is not a reasonable balance of interests between pipelines and landowners. There is no balance when FERC “violates clear Congressional mandate and attempts to withhold a statutory right afforded to certificate holders,” Danly said.

Commissioner Neil Chatterjee did not vote on the order. It is not known at press time May 7 what prompted the recusal from Chatterjee, who previously has touted his empathy and concern for landowners, with changes to the rehearing order process and other steps when he was chairman.

Chatterjee’s term as commissioner ends June 30, and as a Republican he is expected to be replaced with a Democrat nominee from President Joe Biden. As his term nears its end and Chatterjee seeks employment opportunities, it is likely that he may not vote on orders where future employers may be a party. He has not recused on many orders to date, and Order 871-B is a major rulemaking.

Commissioner Mark Christie concurred, with a succinct statement on how the order addresses the uncertainty associated with Order 871 and the D.C. Circuit decision (Allegheny Defense Project v. FERC, No. 17-1098). “While it may not be perfect nor exactly how I alone would resolve the uncertainties and threats created by Order 871, it does represent an acceptable compromise, consistent with the applicable law,” he said.

The order puts clear time limits on how long FERC can withhold a notice to proceed with construction while it considers rehearing requests, providing certainty where none exists now under Order 871, Christie said.

Christie understands the desire of Danly to repeal Order 871, but that is not a realistic prospect. “It is not going to happen,” Christie said of a repeal, adding that the ruling adopted in Order 871-B represents a realistic path forward. “If it is not administered fairly or does not bring the clarity and certainty needed, it can be revisited,” he wrote.

The order follows up on the D.C. Circuit’s June 30, 2020, decision that came after FERC issued Order 871 and said FERC’s use of tolling orders to defer acting on rehearing requests and delay judicial review of NGA certificate orders violates the law. Taking a strict view of the statutory language, the court deemed FERC’s use of tolling orders a violation of the intent of Congress by delaying judicial review of a pipeline approval order while district courts treat the same order as final in eminent domain proceedings.

FERC sought to bring some balance to the process involving pipeline construction, challenges to FERC orders and the rehearing process through the modification of Order 871. The policy to hold a construction authorization outlined in Order 871-B would not affect voluntary land acquisition or project development activities where a pipeline owner and landowner agree on matters, consistent with the stay of the NGA certificate, FERC explained.

Order 871-B clarifies that the prohibition on construction applies until the earlier of the date rehearing requests are no longer pending or 90 days following the date that a rehearing request may be deemed denied by operation of law. The new order also adopts a general policy of staying NGA certificate orders when rehearing is sought, subject to the same 90-day period or a showing by the pipeline developer that a stay should be lifted.

With the revision to Order 871, “FERC is working to fulfill its commitment to protect landowners, communities and the environment while also ensuring that the construction of needed pipelines is not unduly delayed,” said FERC Chairman Richard Glick.

The rule is to be applied in cases where a request for rehearing reflects opposition to project construction, operation or need, FERC said. If a pipeline owner or party raises rate issues or elements in a rehearing request that do not reflect opposition to the project, the stay of construction would not apply.

“The Commission finds that this compromise addresses the competing interests at stake, including those of stakeholders that seek to challenge the Commission’s ultimate decision before irreparable harm may occur, as well as the project developer’s interest in proceeding with construction when it has obtained all necessary permits,” FERC said in a statement.

The stay of certificate orders reflects important limits designed to balance the interests of pipeline developers and landowners, consistent with the public interest, according to the order. “At most, any stay will last no longer than approximately 150 days following the issuance of a certificate order,” and a pipeline developer could avoid a stay by obtaining all property interests before an NGA certificate order from FERC, the Commission said.

Addressing the Administrative Procedure Act requirement for allowing notice and comments, the Commission said Order 871 did not violate the law because the rule did not alter the rights or interests of regulated companies nor change the agency’s substantive outcomes. Nothing in Order 871 or 871-B changes the standards FERC applies on rehearing requests of NGA Section 7 certificate orders.

“Moreover, the timing of when to permit construction to begin is a matter entirely within the Commission’s existing discretion and not a matter of right,” FERC said.

INGAA’s Joan Dreskin said FERC appropriately recognized that Order 871 was too broad and unclear in several respects. Unfortunately for project developers, Order 871-B exacerbates the core challenges for building infrastructure “by unlawfully imposing a presumptive stay of all future Natural Gas Act Section 7 (c) certificates. This presumptive stay is a dramatic departure from 80 years of precedent and will effectively add up to five months of additional delay at FERC” for projects found to be in the public interest.

Delaying the start of construction as outlined in the order does little to benefit landowners, who can appeal FERC orders, while increasing costs for project developers, Dreskin said. “The courthouse doors are already open to landowners and other stakeholders to protect their interests, without the need for this blunt and overbroad stay,” she said.

By Tom Tiernan ttiernan@fosterreport.com

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