D.C. Circuit bars long-standing FERC rehearing tolling practice

On June 30, 2020, the U.S. Court of Appeals for the D.C. Circuit, sitting en banc, denounced the practice of the secretary of the Federal Energy Regulatory Commission (FERC) in issuing tolling orders, which provide FERC with an indefinite period of time to act on applications seeking rehearing of its orders. Allegheny Defense Project v. FERC Case No. 17-1089 (D.C. Circuit June 30, 2020) In a 10/1 opinion, the D.C. Circuit held that the plain text of the Natural Gas Act (15 U.S.C. 717r) (NGA) does not permit FERC to issue tolling orders for the purpose of preventing rehearing requests from being deemed denied (for inaction on the part of FERC in granting or denying the request) and which prevent an applicant’s right to judicial review of FERC’s underlying order. 

The tolling order at issue in Allegheny Defense Project arose from FERC’s issuance of a certificate of public convenience and necessity to Transcontinental Gas Pipe Line Co., which was seeking to construct and operate a 200-mile-long pipeline as part of the Atlantic Sunrise Pipeline Project. A FERC certificate not only authorizes a pipeline company to construct and operate the pipeline, it also provides the company with the power of eminent domain to obtain the necessary rights-of-way when landowners and the company cannot reach agreement on such easements. Parties to the underlying FERC proceedings have the ability to seek rehearing of the commission’s certificate order and, indeed, must apply for rehearing and obtain an order from FERC on the rehearing request before they may seek judicial review of FERC’s underlying order(s). 

Under the NGA, FERC has only 30 days to act on an application for rehearing, and if FERC does not act within that 30-day period, the application is deemed denied. 15 U.S.C. 717r(a). Often, rehearing requests involve extensive challenges to a range of conclusions. Thus, it has been a longstanding FERC practice for its secretary to issue a tolling order upon the filing of a request for rehearing. These tolling orders effectively gave FERC an indefinite period of time to address the issues raised in the application and, ultimately, rule on the rehearing request. Tolling orders also had the effect of preventing applicants from seeking judicial review of FERC’s certificate order(s). As highlighted by Judge Patricia Millett in the Allegheny decision, while this indefinite rehearing process is pending, the certificate holder is nonetheless permitted to file separate eminent domain proceedings in the district courts and potentially obtain immediate possession of the property in order to construct the pipeline.

During the pendency of the case, FERC modified its rules to prevent the commission from authorizing construction activities until it has acted on the merits of a rehearing application. See Order No. 871 (future 18 C.F.R. 157.23). This, in combination with the end of tolling orders, should provide more certainty as to when construction can take place. Notably, the new rule does not preclude the filing of eminent domain proceedings based on the issuance of the FERC certificate. Nonetheless, it is expected that landowners will rely on dicta in both the majority and concurring opinions to challenge the practice of pipeline companies in eminent domain proceedings to seek immediate possession to begin construction activities – including asking district courts to hold all appropriation proceedings in abeyance while a rehearing request is pending. The court in Allegheny, however, specifically noted it was not determining the implications on eminent domain proceedings when FERC grants rehearing (but, see fn 1).

The D.C. Circuit’s ruling will no doubt yield a substantial change in the way FERC conducts business and has the potential to place even more significance on the determinations made in FERC’s original certificate orders. The Allegheny decision is also likely to see impact beyond natural gas pipeline projects, as the court noted the similarities between the NGA and the Federal Power Act and FERC’s related practice of tolling rehearing requests in matters arising under the FPA. Given the relatively tight timeframe the NGA and FPA provide FERC to act on rehearing requests – with tolling orders no longer permitted – FERC and/or other stakeholders may seek Congressional intervention.^[1]