Overview
In March 2020, we authored an article published by Law360, discussing complaints of the United States Congress, courts, and landowners regarding the Federal Energy Regulatory Commission's (FERC or Commission) issuance of tolling orders while natural gas pipelines were exercising the eminent domain rights attached to the grant of a certificate of public convenience and necessity pursuant to section 7(c) of the Natural Gas Act (NGA). We noted that FERC Chairman Chatterjee had designated attorneys in FERC’s rehearing group to focus on rehearing requests involving landowner issues. We also addressed what other actions FERC might undertake. On June 9, FERC issued a final rule to further address landowners' concerns regarding their rights. See Limiting Authorizations to Proceed with Construction Activities Pending Rehearing, Order No. 871, 171 FERC ¶ 61,201 (June 9, 2020) (Order No. 871). Order No. 871 precludes the issuance of authorizations to proceed with construction activities with respect to natural gas facilities authorized by an order issued pursuant to section 3 or section 7 of the NGA until either the time for filing a request for rehearing of such order has passed with no rehearing request being filed or the Commission has acted on the merits of any rehearing request. The order does not address the exercise of eminent domain rights during that period, which drew a partial dissent from one of the four current Commissioners.
Background
The NGA vests the Commission with jurisdiction over the transportation and wholesale sale of natural gas in interstate commerce. 15 U.S.C. § 717(a). Before an entity can construct a natural gas pipeline, it must obtain a certificate of public convenience and necessity pursuant to section 7(c) of the NGA. Once FERC grants a certificate of public convenience and necessity, the NGA authorizes the certificate holder to exercise eminent domain authority if it "cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for, the necessary right-of-way to construct, operate, and maintain a pipe line or pipe lines for the transportation of natural gas[.]" 15 U.S.C. § 717f(h). Section 3 of the NGA prohibits the import or export of natural gas between the United States and a foreign nation without "first having secured an order of the Commission authorizing it to do so." 15 U.S.C. § 717b. Unlike NGA section 7(c), eminent domain rights do not attach to an NGA section 3 authorization.
Certificate orders typically include conditions a company must meet before construction or operation of the project may begin, and typically provide that a company must receive written authorization from FERC's Director of the Office of Energy Projects (or the Director's designee) before commencing construction of any project facilities. As such, an entity must request, in writing, a notice to proceed that authorizes the entity to commence with construction. Written authorization is required to ensure that the Commission's preconstruction requirements have been met.
Pursuant to section 19 of the NGA, a party may seek rehearing of the Commission's NGA section 3 authorization or section 7 certificate determination (and must do so as a prerequisite to seeking judicial review of the decision). On rehearing, FERC may grant or deny the request, or abrogate, or modify its order. If the Commission does not act on the rehearing request within 30 days, the rehearing request is deemed denied. However, it is not uncommon for the Commission to issue a "tolling order" by the 30th day following the filing of a rehearing request to give itself additional time to rule on the request. This practice has been approved by various courts but is under review in the United States Court of Appeals for the District of Columbia Circuit (DC Circuit) in Allegheny Defense Fund v. FERC. Once the Commission issues an order on the merits of a rehearing request, a party may seek judicial review of the Commission's order.
As discussed in our "Reforms That Could Fix FERC’s Pipeline Certificate Reviews" article, the DC Circuit held an en banc oral argument in Allegheny Defense to evaluate landowners' and FERC's arguments about the use of tolling orders that arose under a 2019 DC Circuit ruling under the NGA. The court examined whether it is permissible for the Commission to issue a tolling order and whether such issuance extends the time FERC may act on a rehearing request, which prevents the rehearing party from challenging the Commission's orders in court. Many of the judges were highly skeptical of FERC’s assertion that a tolling order meets the Federal Power Act's (FPA) standard of acting within 30 days upon the filing of rehearing requests, while at the same time being sympathetic to FERC's concern that 30 days may not be sufficient time to address the merits of such requests. Those issues are still pending before the en banc court.
The Final Rule
The Commission issued a final rule on June 9, 2020, adopting a new regulation that precludes the issuance of authorizations to proceed with construction of projects authorized under NGA sections 3 and 7 while rehearing of the initial orders is pending. See 18 C.F.R. § 157.23. The rule ensures that construction of an approved natural gas project will not commence until the Commission has acted upon the merits of any request for rehearing, regardless of land ownership. The Commission issued the final rule without a period for public comment, stating that the rule only applies to "rules of agency organization, procedure, or practice." The final rule will take effect within 30 days of publication in the Federal Register.
The final rule revises FERC's regulations to preclude the issuance of authorizations to proceed with construction activities with respect to a NGA section 3 authorization or section 7(c) certificate order until the Commission acts on the merits of any timely-filed request for rehearing or the time for filing such a request has passed. The Commission contends that the rule will "ensure[] that construction of an approved natural gas project will not commence until the Commission has acted upon the merits of any request for rehearing." 5 U.S.C. 553(b)(3)(A).
Commissioner Glick concurred in part and dissented in part from the final rule. In doing so, he speculated that the final rule was an attempt to address some of the arguments raised in the Allegheny Defense proceeding before the DC Circuit. Commissioner Glick dissents in part from the final rule because "it does nothing to address the concern, . . . that a pipeline developer should not be able to begin the process of condemning private land before the owners of that land can go to court to challenge the certificate" because he believes "[e]minent domain is among the most significant actions that a government may take with regard to an individual’s private property." He laments that the final rule does nothing to deal with the inability of landowners to challenge a certificate in court during the pendency of a rehearing request. Consequently, he recommends that a certificate holder should be prevented from exercising the right to eminent domain prior to landowners being able to go to court to challenge the certificate. To that end, Commissioner Glick recommends that FERC "adopt a practice of presumptively staying § 7 certificates pending Commission action on the merits of any timely filed requests for rehearing." He contends that such a practice would "protect landowners from an action seeking to condemn their property by delaying the issuance of the condition precedent for a condemnation action pursuant to the NGA." During the en banc argument, judges noted that landowners challenging condemnation actions cannot challenge FERC's certificate orders in the local courts and that FERC might not act on the merits of the rehearing requests until well after the condemnation orders have issued and land has been condemned. A rehearing request does not, however, stay the effectiveness of the section 7(c) authorization.
Stay Tuned…
Chairman Chatterjee has committed to FERC acting more expeditiously on rehearing requests, but will FERC add a time limit for acting on rehearing requests to prevent pipelines from being paralyzed on beginning construction? Does FERC's final rule moot the en banc rehearing? Will the Allegheny court continue to endorse the Commission's use of tolling orders? Will the court endorse the use of tolling orders but agree that the issuance of a tolling order provides the requester with authority to raise the issues on judicial appeal during the pendency of its rehearing request? Will the court adopt Commissioner Glick's suggestion that the issuance of a tolling order "presumptively stays" a section 7 certificate pending Commission action on the merits of any timely filed request for rehearing? The Allegheny court's decision on tolling orders will not only impact natural gas matters but may also impact tolling orders issued pursuant to the Federal Power Act. More and more it appears that a legislative fix may be necessary to bring clarity to the Commission's NGA and FPA authority in this regard. With Congress understandably preoccupied with its response to the COVID-19 pandemic, that fix is highly unlikely until 2021 at the earliest.
