Week Ending July 2, 2020

Reactions Vary as Tolling Order Use by FERC is Restricted by D.C. Circuit

This Article Appears as Published in Foster Report No 3306
Reactions Vary as Tolling Order Use by FERC is Restricted by D.C. Circuit

In a ruling praised by landowners and others that have concerns about FERC approvals of infrastructure projects, the U.S. Court of Appeals for the D.C. Circuit on June 30 said FERC’s use of tolling orders to defer judicial review violates the Natural Gas Act.

Among those pleased that the decision addresses the legal quandary landowners face when tolling orders delay an appealable ruling were Rep. Frank Pallone (D-N.J.), Commissioner Richard Glick and groups that represent landowners or conservation entities opposed to new natural gas pipelines. The D.C. Circuit corrected an injustice associated with FERC stalling an order on rehearing requests while pipelines are built, they said.

Pallone applauded the court for “striking down FERC’s terrible practice of indefinitely stalling requests for rehearing. This decision is a win for landowners fighting to protect their property from pipelines.” Like Pallone, Glick posted on Twitter that the decision is “a resounding victory” for communities affected by FERC orders approving pipelines. “It is important that these parties can go to court before a company can take their land & build a pipeline,” he wrote.

The ruling could result in FERC seeking more resources from Congress to address rehearing requests in a prompt fashion, said William Scherman, attorney with Gibson, Dunn & Crutcher LLP, and former general counsel at FERC. With tolling orders now null and void – which Scherman believes will be applied to both NGA cases and rehearing requests under the Federal Power Act (FPA) – there will be a bigger caseload burden on FERC staff to handle rehearing requests on a more expedited basis, Scherman said in a brief interview.

The court did not recognize the practical reality of interpreting a 1938 statute with the increasing workload FERC is facing, without much guidance from Congress lately on some important matters, Scherman said. Even though Chairman Neil Chatterjee shuffled staff to address rehearing requests more promptly and made other changes to address landowner concerns, which Sherman praised, “there is no question that FERC will need additional resources to deal with rehearings” in the manner directed by the court, he said.

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. The resulting disparity in treatment of FERC orders allows pipeline construction to take place while landowners or others are in legal limbo, and that is what the D.C. Circuit addressed in the June 30 decision (Allegheny Defense Project v. FERC, No. 17-1098).

Whether the use of tolling orders is truly dead, as Judge Thomas Griffith wrote in a concurring statement, might be subject to debate along the lines of Schrodinger’s cat that Judge Patricia Millett wrote about in the majority opinion. Millett wrote a concurring statement to the August 2019 decision upholding the order approving Transcontinental Gas Pipe Line Corp.’s Atlantic Sunrise project that kicked off the court’s latest review of tolling orders. She referred to the disparate treatment by the courts as a “Kafkaesque regime” that puts landowners and others challenging an NGA certificate order in “a bureaucratic purgatory that only Dante could love.”

In the 10-1 opinion that followed en banc oral argument held in April, Millett wrote that tolling orders “render Commission decisions akin to Schrodinger’s cat: both final and not final at the same time.”

FERC has essentially conceded that tolling orders in the past were routinely issued with the sole intent to provide more time than the 30 days allowed under Section 717r(a) of the NGA when faced with a request for rehearing, the court noted. The statute says a failure to act on rehearing within 30 days would mean rehearing is denied, and tolling orders buy time to act on rehearing requests, with the Commission sometimes taking more than a year to issue a final order to be appealed. Transco’s Atlantic Sunrise project was built and in service by the time FERC issued the final order on rehearing requests, the court pointed out, with an average of about seven month for a final order over the past 12 years in pipeline cases.

The court said FERC’s practice with tolling orders essentially rewrites the statute to mean that a failure to act within 30 days means nothing, and when Congress wants to give agencies such discretion it states so explicitly. Congress has not done that with the NGA, and the agency interpretation is not subject to deference here because eminent domain proceedings are under the authority of the courts, not FERC, the majority opinion concluded.

Griffith was joined on the concurring statement by Judges Gregory Katsas and Neomi Rao, and all three of them were appointed by Republican presidents, illustrating that private property rights is a bipartisan issue that cuts across judicial philosophies, said Gillian Giannetti, staff attorney at the Natural Resources Defense Council.

Griffith wrote that district courts should not be quick to address pipeline condemnation requests in eminent domain proceedings, since a final ruling on an NGA certificate order might come sooner than before the ruling, when the stalling tactics of a tolling order were honored. “Now that the era of tolling orders is over, a district court shouldn’t assume that a grant of rehearing is merely a dilatory ploy,” Griffith said.

District court judges could still rule on eminent domain requests in the same way they have in the past, but that is an element that will be resolved going forward and is not known at the moment, Scherman said. Many such proceedings take longer than the 70 days outlined in the court’s ruling for a final order on rehearing, so the ruling may not have much of an impact at the district court level, he said.

The majority opinion explained that once an entity seeks rehearing of a FERC order approving a pipeline certificate, NGA Section 717 provides four ways FERC can act on that. It can grant or deny rehearing, abrogate, or modify its order without further hearing. If the Commission fails to take any of those steps in 30 days, the rehearing request is deemed to have been denied.

Parties challenging a certificate order can petition an appeals court, and Section 717r(a), with identical language in the FPA, has a provision that FERC holds concurrent jurisdiction with the court for an initial period of time. “That provision typically affords the Commission at least an additional forty days after service of a petition for review within which to reconsider its prior order,” the court said.

FERC also has an option to seek more time from an appeals court if it wants to file a motion for an extension of time.

Several people reached after the court issued the decision noted that FERC has a good track record of being upheld by appeals courts.

One potential upshot of the decision is that FERC might take more time to issue NGA certificate orders, said Giannetti. Among the criticisms of tolling orders is that they enable FERC to buy time on rehearing to backstop the certificate orders, and a shorter period of time to do that could result in FERC taking more time on pipeline applications, she said.

There is no timeline for FERC to act on a pipeline application, other than what is requested by the companies to meet commitments to shippers and construction schedules. Those commitments and construction schedules are a legitimate concern, Giannetti said. But a better outcome for all involved is for FERC to take time on the front end of the process to make sure its orders are legally sound, instead of on the back end in response to rehearing requests, she said.

The Commission may be more careful in their NGA certificate orders and allow requests for rehearing to be denied by operation of law through not acting on them, said Benjamin Luckett, senior attorney with Appalachian Mountain Advocates. Luckett, like Giannetti, was among the attorneys on the briefs in support of petitioners. He is not sure what steps FERC will take on rehearing in light of the D.C. Circuit decision, but he is not aware of a single case where FERC took new information or held a subsequent hearing, as suggested in the concurring statement.

Griffith wrote that if FERC grants rehearing it secures additional time to consider arguments for modifying or revoking the initial order. The Commission should receive the benefit of the doubt when it signals a clear intention to reconsider the merits in a case, because its “leeway to postpone judicial review isn’t an aberration born of agency trickery; it’s a consequence of the statutory text and sound circuit precedent.”

FERC could stay within the bounds of the statute by setting a briefing schedule or ordering the pipeline owners to respond to claims made in the rehearing requests, according to the concurring statement.

Scherman said the view of taking the added 40 days to address rehearing requests is a novel approach that was not the intent of the statute and has not been viewed by FERC as an option.

Of course, in the realm of past practices with tolling orders, there was no need to consider that as an option.

“Up to now, nobody thought of the period of concurrent jurisdiction as added time to act on rehearings,” Scherman said.

Scherman asserted that an overwhelming number of landowner issues that come up in pipeline cases are dealt with commercially by pipeline companies and the use of eminent domain had been “extremely rare” until recently. Plaintiff attorneys have latched onto landowners and eminent domain fights as a new source of business, and pipeline companies have seen requests for exorbitant amounts of money, well above market value, for property in condemnation proceedings at district courts, he said.

There are legitimate landowner issues in pipeline cases, but in some instances landowners “are being used by environmental groups with an anti-pipeline agenda,” Scherman said.

In terms of next steps at FERC, Luckett said the court’s decision shuts off the path that was taken in the Transco case, where the pipeline was built before FERC issued an order on rehearing. The court noted that FERC took no action on motions to stay the certificate order while rehearing was pending and said the petitioners challenging the certificate order on appeal were “incurably premature” because it had not acted on the rehearing requests.

The argument that “you can’t possibly ask us to remove a pipeline that’s been built will not be there anymore,” Luckett said. “We’re very pleased” that the court basically agreed with the points made by the petitioners in the case, he said in an interview.

FERC can take up to 70 days to issue a rehearing order, but it cannot take as much time as it wants, said Christine Tezak, managing director at ClearView Energy Partners. Nor can the Commission point to the absence of substantive action on rehearing to claim an appeal is incurably premature. The court also noted that FERC could ask for more time than allowed in the statute, but there is no guarantee that the request would be granted, she pointed out.

As did others, Tezak found the directive for district courts in the concurring statement interesting, even though as dicta it would not be binding for district courts facing eminent domain requests. “We flag this for clients as a caution that conservative jurists seeking to constrain agencies from exerting too much interpretive authority under their statutes may not be excused simply because the underlying issue relates to conventional energy infrastructure supported by the current Administration,” Tezak said.

The court acknowledged recent reforms initiated by Chatterjee to try and address rehearing requests promptly and delay pipeline construction until all permits are in hand. But those have no effect on the eminent domain process, which is where the injustice lies that the court found worthy of rescinding past practices upheld since a 1969 D.C. Circuit decision in California Power Co. v. Federal Power Commission.

Of the 11 judges who participated in the oral argument, only Karen LeCraft Henderson did not ask questions from the attorneys who presented their views, and she was the dissenting vote in the decision.

Henderson asserted that the majority is not justified in overturning FERC’s use of tolling orders, which has been upheld by multiple courts since 1969, including the D.C. Circuit in recent decisions. Her preference is to leave the issue to Congress and the agency, which is entitled to deference. “The majority initiates the type of ‘erratic’ change in the law that stare decisis is designed to prevent,” she wrote.

While sharing the majority’s commitment to textualism in the statute, Henderson said she would exercise judicial restraint and not rule that every court that has upheld NGA Section 717r was wrong, because there is nothing compelling to change that view. “Overruling California Co. and its progeny because a majority of our court now believes those cases misconstrued Section 717r(a) renders stare decisis meaningless and draws the Judiciary into a policymaking role that is the province of the elected branches,” she said.

The majority decision acknowledged that agency deference under Chevron U.S.A. v. NRDC is often granted and that is what FERC sought in the case. The problem for FERC is that agency deference under Chevron only applies to its administration of statutes it has expertise on, and NGA Section 717r(a) addresses federal court jurisdiction and judicial reviews. “The responsibility for interpreting Section 717r(a) falls to the courts, not the Commission,” Millett wrote in the majority decision.

The Commission’s use of tolling orders to buy time for legal appeals is something that has been carried out over many years, and the oral argument in the case signaled a change was coming, Giannetti said in response to questions on the case.

The applicability of the ruling to FERC’s use of tolling orders under the FPA is among the wrinkles being examined by attorneys and parties who have been watching the case develop. The decision refers several times to the similarities in the statutes and the rehearing request process for both, but the finding that FERC’s current practice violates the NGA is only explicitly stated about that law. The statutes are so similar that it will affect tolling orders under the FPA as well, Scherman said.

Giannetti agreed that it is only a matter of time before FERC addresses how it will handle rehearing orders, and it likely would tackle both the power side and the gas side because tolling orders are issued under both statutes. How FERC responds under the statutes could differ, but the court’s ruling should be equally applicable, she said.

FERC historically does not comment on court rulings outside of its orders or individual statements by commissioners.

Griffith’s concurring statement also referenced the recent reforms initiated by Chatterjee, noting that the agency is showing it can change course in the face of public scrutiny. The June 9 final rule limiting authorization of construction until all permits are in hand and an earlier reshuffling of FERC staff to address rehearing requests involving landowners faster “defangs much of the injustice associated with deferred judicial review,” Griffith wrote. And any retraction to the previous policy of seeking unlimited time to issue a final order would be ripe for a challenge as arbitrary and capricious under the Administrative Procedures Act.

The concurring statement also maintains that courts should guard against providing agencies too much leeway, asserting that “an agency given an inch might be tempted to take a mile. If the Commission promises rehearing proceedings but in fact provides nothing more than undue delay, we should entertain the possibility of mandamus relief.”

In the Transco case, the homeowners who challenged the certificate order faced condemnation proceedings in district court three weeks after Transco told the D.C. Circuit that the order is “non-final” for judicial review, Millett related. In August of 2017, five months after FERC issued its tolling order, the district court granted Transco possession of the properties through eminent domain.

The next week, which was almost seven months after a stay of the certificate order was sought, FERC denied the homeowners and environmental groups request for a stay. “In doing so, the Commission dismissed the homeowners’ concerns about the destruction of their trees, the digging or blasting of a trench across their yards, and the air pollution at their properties as merely ‘generalized claims of environmental harm [that] do not constitute sufficient evidence of irreparable harm that would justify a stay,” the court said.

By the time the initial oral argument was held, in December of 2018, the Atlantic Sunrise project had been built and in service for two months, the court related.

As did others, attorney Carolyn Elefant said she was not surprised by the court’s ruling because it was quite clear from the en banc oral argument that a majority of the judges had strong concerns about FERC’s use of tolling orders. The Commission sitting on rehearing requests looks horrible while it allows pipeline construction to take place, she said.

Elefant said the concurring statement from Griffith, Katsas and Rao will be helpful for courts seeking guidance on the process. Although it is not binding on district courts to consider, judges may look at it and defer a ruling until a final FERC order is received or even deny eminent domain requests, Elefant said.

The Interstate Natural Gas Association of America is still reviewing the decision. “That said, we believe that all parties to a pipeline proceeding should have their requests for rehearing heard by FERC in a timely manner so that all parties understand the reasoning behind the Commission’s decision making,” said Joan Dreskin, general counsel at INGAA.

While admonishing FERC on the use of tolling orders, the court upheld FERC’s approval of the Transco Atlantic Sunrise project. It rejected the claims of landowners and others who challenged the need for the pipeline expansion. It agreed with the three-judge panel that reached the same finding in August of 2019, when Millett wrote the concurring statement.

Shortly after that ruling, Chatterjee announced changes to FERC procedures in addressing landowner issues, and he has pointed out that his concern for landowner rights preceded the D.C. Circuit decision. He spoke to groups about his empathy for landowners dealing with the FERC process well before the court ruled, and in early 2018 he concurred on FERC’s approval of the PennEast Pipeline project because of incomplete environmental surveys for some of the landowners.

A spokesman for Transco parent Williams Companies said the company is pleased that the court denied the challenges to the merits of FERC’s certificate order authorizing the Atlantic Sunrise project.

By Tom Tiernan ttiernan@fosterreport.com

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