D.C. Circuit Rejects FERC Tolling Order Practice

July 1, 2020

On June 30, 2020, in Allegheny Defense Project v. FERC, the U.S. Court of Appeals for the District of Columbia Circuit ruled en banc that the Natural Gas Act (NGA) does not allow the Federal Energy Regulatory Commission (FERC) to use tolling orders to avoid facing legal challenges in court.

Before proceeding to judicial review, the NGA requires parties seeking to challenge a FERC decision to request rehearing before FERC. Under the NGA, FERC has 30 days to act upon a request for rehearing. The NGA provides FERC with four options in acting on a request for rehearing: (1) grant rehearing; (2) deny rehearing; (3) abrogate its order without further hearing; and (4) modify its order without further hearing. FERC’s longstanding practice has been to issue tolling orders, which suspend the 30-day statutory deadline in order to allow FERC to fully address arguments raised on rehearing.

The question before the D.C. Circuit was whether FERC “acts upon” a request for rehearing under the NGA by issuing a tolling order that takes no action on the application other than affording FERC more time for consideration. While the court upheld FERC’s approval of the completed Atlantic Sunrise project, the FERC tolling order under review in the case, it rejected FERC’s longstanding tolling policy.

In a 10-1 ruling, the majority opinion, authored by Judge Patricia Millett, concluded that tolling orders are incompatible with the plain language of the NGA because the statute does not permit FERC to extend the 30-day statutory deadline for acting on petitions for rehearing unless it acts substantively on the underlying order. Judge Millett noted that FERC’s use of tolling orders “has become virtually automatic” and does nothing other than buy the agency more time to act on a rehearing application and stall judicial review. “Tolling orders, in other words, render Commission decisions akin to Schrodinger’s cat: both final and not final at the same time,” Judge Millett wrote. Accordingly, the court held that “after thirty days elapsed from the filing of a rehearing application without Commission action, the [t]olling [o]rder could neither prevent a deemed denial nor alter the jurisdictional consequences of agency inaction. To the extent our prior decisions upheld the use of tolling orders in that manner, they are overruled in relevant part.” However, the court emphasized that it is not directing FERC to decide rehearing requests within 30 days.

In her dissent, Judge Karen Henderson said the majority’s ruling “renders stare decisis meaningless” and puts courts in a policymaking role that belongs to Congress and FERC.

In his concurring opinion, Judge Thomas Griffith stated that the majority opinion rightly eliminated FERC’s “signature stalling tactic,” but emphasized that the decision does not alter the fact that FERC may still postpone review by granting rehearing.

Implications

The D.C. Circuit’s decision will likely have significant implications on a variety of FERC matters.

The decision could force FERC to consider new procedures for handling rehearing petitions. Notably, FERC has already reformed its NGA regulations in anticipation of this decision. (See McGuireWoods’ June 12, 2020, client alert, “FERC Amends Regulations, Precludes Natural Gas Facility Construction While Rehearing Is Pending.”)

Additionally, while the D.C. Circuit’s opinion focused on the NGA, it could also implicate tolling orders under the Federal Power Act (FPA). The NGA provisions upon which the court focused have very close analogues in the FPA. In fact, the court itself noted that the FPA is a “close relative” of the NGA that has a rehearing provision, 16 U.S.C. § 825l(a), that contains “identical” language to the section of the NGA, 15 U.S.C. § 717r(a), that it analyzed. Moreover, FERC regularly tolls rehearing requests under the FPA upon a similar basis.

Moreover, the D.C. Circuit’s ruling could impact matters before FERC with pending tolling orders. For example, the decision states that “after thirty days elapsed from the filing of a rehearing application without Commission action, the Tolling Order could neither prevent a deemed denial nor alter the jurisdictional consequences of agency inaction.” This raises the question of whether, for the numerous proceedings in which FERC has responded to a request for a rehearing with a tolling order, FERC will now be deemed to have effectively denied rehearing.

Further, the decision is seen as a major victory for landowners whose properties lie in the path of pipeline projects. Judge Griffith’s concurring opinion was particularly targeted at landowner protections and clarified that uninterrupted construction and eminent domain are other drivers of unfairness for landowners. The D.C. Circuit’s decision, in combination with FERC’s recently enacted rule preventing construction during rehearing, could cause certain district courts to hold eminent domain cases in abeyance during rehearing.

The precise implications for any client situation may be heavily dependent on the nature and timing of pending matters. McGuireWoods lawyers are evaluating those possible implications and are happy to discuss them on a client-specific basis.

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