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DC Circuit Upends Long-Standing FERC Practice on Tolling Orders

On June 30, 2020, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit” or “Court”) issued an en banc rehearing order holding that the Natural Gas Act (“NGA”) does not permit the Federal Energy Regulatory Commission (“FERC”) to issue tolling orders for the sole purpose of preventing rehearing requests from being denied by operation of law.  See Allegheny Defense Project, et al. v. FERC, No. 17-1098 (“Allegheny”).  The decision upends a practice that has been used by FERC for decades to delay addressing the merits of requests for rehearing.  Because the NGA and the Federal Power Act (“FPA”) have essentially identical rehearing provisions, Allegheny’s holding is very likely to be extended to rehearing requests under the FPA.

Statutory Language and FERC’s Existing Practices

NGA Section 19, 15 U.S.C. § 717r, governs rehearing and review of FERC orders.  NGA Section 19(b) makes judicial review contingent upon an aggrieved party first raising that issue with FERC on rehearing.  Section 19(b) provides that “[n]o objection. . .” to a FERC order “shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do.”

Rehearing requests must be filed within thirty days of the issuance of an order.  Section 19(a) provides that FERC may “grant or deny rehearing or to abrogate or modify its order without further hearing.”  It states that “[u]nless the Commission acts upon the application for rehearing within thirty days after it is filed, such application may be deemed to have been denied.”  Id.  Further, it clarifies that the Commission retains jurisdiction to “modify or set aside, in whole or in part,” any order until the record of the relevant proceeding has been filed with an appeals court for the purposes of judicial review.  Id.

FERC rarely is able to issue orders addressing rehearing requests on the merits within the thirty-day deadline.  Accordingly, FERC’s standard practice is to issue, within thirty days of the receipt of a rehearing request, a tolling order that grants rehearing “for the limited purpose of further consideration,” and that states that “timely-filed rehearing requests will not be deemed denied by operation of law.”  FERC’s standard language also provides that the “[r]ehearing requests . . . will be addressed in a future order.”

The Underlying Case

Allegheny involved a petition by Transcontinental Gas Pipe Line Co. (“Transco”) for a certificate of public convenience and necessity (“CPCN”) for its Atlantic Sunrise Project (“Project”).  Landowners whose property would be crossed by the Project objected but the CPCN was granted in February 2017 (the “CPCN Order”).   The Landowners filed timely rehearing requests.  FERC issued a standard tolling order at the conclusion of the thirty-day statutory rehearing period.  The Landowners then filed separate petitions for review of the CPCN Order and the tolling order in the D.C. Circuit.

FERC and Transco moved to dismiss the petitions on the ground that they were “incurably premature,” because FERC had not yet ruled on the rehearing requests.  Subsequently, Transco successfully condemned the Landowners’ property, and FERC issued an order allowing the Project to commence construction (the “Construction Order”).  Only then did FERC deny the requests for rehearing of the CPCN Order and the Construction Order on the merits.  By the time that oral argument on the Landowners’ claims was held before the D.C. Circuit, the Project already had been operational for two months.

The D.C. Circuit initially rejected the Landowners’ challenges in 2019.  However, the Court subsequently granted rehearing en banc.

Allegheny’s Holding and Analysis

As noted above, NGA Section 19(a) provides that a rehearing request is deemed to be rejected unless FERC “acts upon” that request within thirty days of the date that it is filed.  The D.C. Circuit granted rehearing to decide whether FERC “acts upon” a rehearing request within the meaning of the statute when it issues a tolling order of the type used in the Transco proceeding.  The Court treated the issue as “a focused question of statutory construction” (Slip op. at 15) to be decided de novo.  The D.C. Circuit declined to give FERC any deference on the issue pursuant to the Chevron doctrine and focused its analysis solely on the text of the NGA.

The Court found significant the sentence in NGA Section 19(a) which states that upon receiving a rehearing request, FERC may grant or deny rehearing or abrogate or modify its order without further hearing.  The Court held that these listed actions – granting rehearing, denying rehearing, abrogating the order, or modifying the order – were the only permissible ways for FERC to “act upon” a request for rehearing.  According to the Court, if FERC does not take one of these four actions within thirty days of the filing of a rehearing request, “the applicant may deem its rehearing application denied and seek judicial review of the now-final agency action.”  Slip op. at 23.

The Court then held that the tolling orders did not constitute a “grant” of rehearing within the meaning of NGA Section 19(a).  The Court stated that: a “grant” of rehearing, as opposed to inaction on an application for rehearing, necessarily requires at least some substantive engagement with the application. A grant of rehearing cannot consist solely of a grant of additional time to decide whether to grant rehearing.  Slip op. at 23.

The Court found the tolling orders in the Transco proceeding were “made without any substantive engagement with the rehearing application” (Slip op. at 23) and were issued, by FERC’s own admission, for the sole purpose of “kicking the can down the road.”  Slip op. at 24.  The Court observed that the tolling orders were issued by FERC’s Secretary, rather than by the Commission itself, and that FERC acknowledged that the “sole function [of the tolling orders] was to grant the Commission an unbounded amount of ‘additional time.’” Slip op. at 25, 26.  The Court found it particularly compelling that “the Commission has taken 212 days on average—about seven months—from tolling order to actual rehearing decision on landowners’ applications in pipeline cases.”  Id.

The Court’s ruling also was animated by concerns about the potential unfairness of FERC’s approach, particularly to landowners.  The Court asserted that FERC’s tolling order practices “prevent aggrieved parties from obtaining timely judicial review of the Commission’s decision[s]” and that “the Commission has eliminated entirely the jurisdictional consequences of its inaction, preventing rehearing applications from being deemed denied even after they have been pending for prolonged periods of time.”  Slip op. at 16.  The Court noted further that in “this case, the Commission used tolling orders to give itself roughly ten times as long as the statute allots for it to act.”  Id.

Finally, the Court rejected stare decisis as a basis for upholding the Commission’s longstanding practice of issuing tolling orders.  The Court overturned past D.C. Circuit decisions authorizing FERC’s tolling order practices.

Importantly, the Court emphasized that “the only question we decide is that the Commission cannot use tolling orders to change the statutorily prescribed jurisdictional consequences of its inaction.”  Slip op. at 29.  It clarified that “[t]hat is not the same thing as saying the Commission must actually decide the rehearing application within that thirty-day window.”  Id.  It did “not decide whether or how Section [19(a)], the ripeness doctrine or exhaustion principles might apply if the Commission were to grant rehearing for the express purpose of revisiting and substantively reconsidering a prior decision, and needed additional time to allow for supplemental briefing or further hearing processes.”  Id. at 29-30.

The Court also observed that even if FERC allows the thirty-day period to expire without ruling on a rehearing request, the NGA “specifically gives the Commission more time to decide by providing that, ‘[u]ntil the record in a proceeding shall have been filed in a court of appeals,’ the Commission ‘may at any time, upon reasonable notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any finding or order made or issued by it under the provisions of [the Natural Gas Act].”  Slip op. at 30.  Rule 17(a) of the Federal Rules of Appellate Procedure requires that an agency file the record with the applicable appellate court no later than 40 days after the agency has been served with a petition for review.  Thus, the Court found that the provision in NGA Section 19(a) preserving FERC’s jurisdiction over proceedings until the filing of the record with the relevant appeals court gives FERC at least forty days after a petition for review is filed to revise an order, even if rehearing has been denied by operation of law.  Id.  Nonetheless, the Court concluded 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.”  Slip op. at 34.

Consequently, the Court rejected FERC’s motions to dismiss the Landowners’ petitions.  However, it ultimately denied the Landowners’ petitions on the merits.

Concurrence and Dissent

Judge Griffith, joined by Judges Katsas and Rao, issued a concurring opinion suggesting that “the Commission can grant rehearing withoutmaking a merits decision” and that “[n]othing in the statute suggests that Congress really meant ‘decide the merits’ when it said ‘grant . . . rehearing.’”  Concurrence at 2 (emphasis in original).  According to Judge Griffith, a “rehearing grant . . . is nothing more than a decision to engage in ‘further hearing.’”  Id. at 3.  FERC is “free to grant rehearing by agreeing to consider the applicant’s arguments for modifying or revoking its previous action—i.e., by deciding to decide” and FERC “should receive the benefit of the doubt when it issues an order that announces a clear intention to reconsider the merits of the underlying order and a concrete step operationalizing that intent.”  Id.  In Judge Griffith’s view, this approach would allow FERC sufficient time to address substantive rehearing requests on the merits, without allowing for delaying tactics.  Denying FERC the opportunity to address substantive rehearing requests “would subvert Congress’s expectation that generalist judges will, in the ordinary course, consider complex pipeline cases only after expert review.”  Id.

Judge Henderson issued the lone dissent, opining that the majority had not adequately considered the importance of stare decisis.  Dissenting Slip. Op. at 5.

Implications

Allegheny is clear that FERC’s traditional practice of using tolling orders to avoid the denial of rehearing by operation of law after thirty days under NGA Section 19(a) will no longer be permitted.  Although Allegheny does not address the FPA, the fact that the NGA and FPA have identical rehearing provisions, together with decades of precedent holding that the two statutes should be construed in pari materia, strongly suggests that Allegheny’s holding will be extended to the FPA as well.

Both the majority and the concurring opinions in Allegheny attempt to provide some guidance on what types of actions, short of a ruling on the merits, will suffice to “act[] on” a rehearing request, and thus avoid the rejection of rehearing by operation of law.  Such actions by FERC might include: (i) issuing additional orders that provide for further briefing or that otherwise attempt to engage the substance of the rehearing requests but stop short of ruling on the merits; and (ii) allowing petitions for review to be filed thirty days after rehearing requests but then ruling on the merits of the requests before the record is filed and FERC loses jurisdiction.

FERC Chairman Neil Chatterjee previously has warned that the agency cannot possibly act on the merits on all rehearing requests within thirty days at its current staffing levels.  Already, FERC has reacted to the Allegheny decision by issuing, in certain proceedings where thirty days have elapsed since the filing of rehearing requests, orders entitled “Notice of Denial of Rehearing by Operation of Law and Providing for Further Consideration.”  See, e.g., Midcontinent Independent System Operator, Inc., et al., Notice of Denial of Rehearing by Operation of Law and Providing for Further Consideration, Docket No. ER20-1078-001, issued July 1, 2020.  These orders suggest that in light of the Allegheny decision, in the absence of FERC action within thirty days of the date that a rehearing request was filed, such a rehearing request “(and any timely requests for rehearing filed subsequently) may be deemed to be denied.”  They also state that the “rehearing request of the above-cited order filed in this proceeding will be addressed in a future order” and that FERC reserves the right to modify the underlying order in the future.  In these orders, FERC appears to acknowledge that rehearing of the underlying order will be denied by operation of law because it has not “acted” by the thirty-day deadline.  At the same time, FERC is reserving the right to revise its rulings between the expiration of the thirty-day deadline and the time that the record of the underlying proceeding is transferred to an appeals court.

It is possible that the approach reflected in these very recent post-Allegheny orders is only temporary, and that FERC will formally adopt a different approach in the near future.  Nonetheless, one likely result of the Allegheny decision is that FERC will have much less time than in the past to resolve rehearing requests on the merits.  Reflecting this dilemma, Chairman Chatterjee and Commissioner Rich Glick issued a  joint statement on July 2, 2020, urging Congress to consider amending both the NGA and the FPA to provide FERC “a reasonable amount of additional time” to address rehearing requests.  Their statement recommended clarifying that “while rehearing requests are pending, the Commission should be prohibited from issuing a notice to proceed with construction and no entity should be able to begin eminent domain proceedings involving the projects addressed in the orders subject to those rehearing requests.”

No matter what steps FERC takes to ensure that it “acts on” a rehearing request within the thirty-day window after a rehearing request is filed, it will be imperative for parties in FERC proceedings to protect their interests by filing timely petitions for review.  Such petitions for review must be filed within sixty days of a denial of rehearing.  Given the new uncertainty surrounding what kind of Commission action, or inaction, would constitute a denial of rehearing, parties should carefully track rehearing requests that implicate their interests.  Until the full implications of the Allegheny decision are clear, parties should plan to file petitions for review no more than sixty days after the expiration of the thirty-day statutory deadline for FERC action on rehearing requests under both the NGA and FPA.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 188

TRENDING LEGAL ANALYSIS


About this Author

Ted J. Murphy Federal Energy Regulation Attorney Hunton Andrews Kurth Washington, DC
Partner

Ted’s practice focuses on federal energy regulation, particularly FERC regulation of electricity and natural gas transmission, markets, and transactions.

Ted also focuses on FERC and NERC reliability issues (including cybersecurity), advising clients making acquisitions or investments that implicate the Federal Power Act, the Natural Gas Act, the Public Utility Regulatory Policies Act of 1978, and the Public Utility Holding Company Act ("PUHCA") of 2005, and the implementation of federal policies designed to promote the development of renewable energy.

Most recently, Ted’s...

202-955-1588
Brian M. Zimmet Energy Sector Security Attorney Hunton Andrews Kurth Washington, DC
Senior Attorney

Brian’s practice focuses on federal and state energy regulation, with a particular emphasis on Federal Energy Regulatory Commission (FERC) restructuring of electricity markets, Regional Transmission Organization (RTO) and Independent System Operator (ISO) operations, and rate regulation.

Brian’s practice encompasses all major issues involving the regulation of the electric energy and natural gas industries. He has extensive experience with the rules governing operation of RTO/ISO markets, and has advised clients on a wide range of RTO/ISO matters, including financial transmission rights (FTRs) and auction revenue rights (ARRs), market design and operations, resource adequacy and capacity market issues, Order No. 1000 and related planning issues, transmission cost allocation, and price formation and uplift charge issues. Brian also has substantial experience with almost all other aspects of FERC electricity regulation under Part II of the Federal Power Act (FPA), the Public Utility Regulatory Policies Act, and the Public Utility Holding Company Act of 2005, including market-based rates, cost-of-service ratemaking and FERC’s Uniform System of Accounts, FERC review and approval of mergers and asset dispositions under FPA Section 203, open access transmission issues under Order Nos. 888 and 890, generator interconnection agreements and related issues, FERC affiliate rules (especially the code and standards of conduct), securities issuances under FPA Section 204, rate filing requirements under FPA Section 205, the Mobile-Sierra Doctrine, Qualifying Facility (QF) qualification and exemptions, Exempt Wholesale Generator (EWG) issues, market manipulation, reliability regulation by FERC and the North American Electric Reliability Corporation (NERC), and issues involving the scope of FERC jurisdiction and the dividing line between FERC and state authority over electric markets. Brian also has experience advising clients on natural gas issues, including FERC’s capacity release rules and the negotiation of precedent agreements, as well as the licensing of hydroelectric projects.

Brian was the primary drafter of the Retail Electric Competition and Consumer Protection Act of 1999, which is Washington, DC’s electric retail access legislation. Brian is admitted to practice before the US Court of Appeals for the District of Columbia Circuit and the US Court of Appeals for the Ninth Circuit.

202-955-1557