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Washington Watch: Supreme Court, FERC Umpiring Pipeline Approvals

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In June, with no baseball being played, the only ones’ calling balls and strikes in Washington, D.C., were the courts and regulators. In the legal equivalent of “booth review,” the Supreme Court reversed a Fourth Circuit decision that could have been the death knell to the $8 billion Atlantic Coast Pipeline. Meanwhile, the Federal Energy Regulatory Commission (FERC) issued a rule, which effectively grants a “time out” for pipeline construction, until FERC issues rehearing orders in proceedings involving pipelines authorized under Section 7(c) of the Natural Gas Act (NGA).

Supreme Court

The Supreme Court issued an opinion involving the Atlantic Coast Pipeline. Years ago, FERC granted certificate authorization to construct the natural gas pipeline, which would link West Virginia production with markets in Virginia and North Carolina. As approved, the pipeline would traverse a portion of the George Washington National Forest (GW Forest) and would cross beneath — 600 ft beneath — a 0.1-mile portion of the Appalachian Trail (Trail). The Trail, which is 2,200 miles long, runs through public, state, and private lands, including part of the GW Forest. The U.S. Forest Service issued a special permit granting the pipeline a right-of-way to cross under the Trail. Environmental groups appealed the right-of-way, arguing that because the Parks Service administers the Trail, the Forest Service had no authority to issue the right-of-way. The Fourth Circuit agreed and vacated the right-of-way.

The Supreme Court, in 7-2 opinion, ruled that by creating the Trail, Congress merely gave an easement to Park Service to establish and administer the Trail, but the land remained under Forest Service jurisdiction. The Court reasoned that, to hold otherwise, the “privately owned and state-owned lands [over which the Trail crosses]would also become lands in the National Park System.” Justice Clarence Thomas summed it up this way: “Sometimes a complicated regulatory scheme may cause us to miss the forest for the trees, but at bottom, these cases boil down to a simple proposition: A trails is a trail, and land is land.”

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Despite the Supreme Court’s favorable opinion, the pipeline faces more obstacles. For example, earlier this year, the Fourth Circuit vacated two permits — one an air permit issued by the Virginia Air Pollution Control Board for a compressor station to be built in the historic black community of Union Hill, Virginia; the other a biological opinion from the U.S. Fish and Wildlife Service to comply with the Endangered Species Act. Replacement permits must be obtained, and they will likely be challenged. Furthermore, landowners along the right-of-way are still fighting to retain their land taken by eminent domain. Because of these obstacles, Dominion and Duke announced July 5 that they were canceling the project.

FERC

FERC issued Order No. 871, a rulemaking order that amends FERC’s regulations to delay authorization to commence construction of any approved natural gas pipeline or import/export facilities, until after FERC acts on a request for request for rehearing of order approving the facility. This rule change will likely delay construction of new natural gas infrastructure projects and, as such, benefit landowners and environmental groups who challenge FERC’s authorization of the projects. FERC did all this without public notice or comment. Why? The answer follows.

The NGA requires that, before building interstate natural gas pipeline facilities, one must obtain a certificate of public convenience and necessity issued under Section 7(c). Certificate authorization vests the holder with the right to exercise eminent domain to acquire rights-of-way needed to construct the pipeline. Similarly, FERC authorizes, under NGA Section 3, the siting, construction, expansion, or operation of import/export facilities; this authorization, however, comes without eminent domain rights. Furthermore, FERC infrastructure orders generally come with a condition that construction cannot commence until the authorized company seeks and the FERC Staff provides written notice to proceed with construction.

With increasing regularity, environmental groups and landowners challenge natural gas infrastructure projects. Challengers may file, within 30 days of an authorization order, a request that FERC rehear (i.e., modify or reverse) its decision, after which FERC has 30 days to issue a rehearing order or the rehearing request is automatically denied by operation of law. In a complex proceeding, it is often difficult for FERC to act on a rehearing request within 30 days. So FERC often issues a “tolling order,” which typically provides: “In order to afford additional time for consideration of the matters raised or to be raised, rehearing of the Commission’s order is hereby granted for the limited purpose of further consideration, and timely filed rehearing requests will not be deemed denied by operation of law.” Afterwards, FERC can take months or years to issue a rehearing order on the merits. Only after a denial of rehearing, can aggrieved party seek judicial review. Accordingly, issuance of tolling order also delays judicial review.

Clearly, a pipeline’s desire to proceed with construction of an authorized project can conflict with a challenger’s desire that construction not occur until after FERC acts on the challenger’s rehearing request. That conflict was recently the subject of an appellate proceeding before the DC Circuit — Allegheny Defense Project v. FERC. Despite Order No. 817’s never mentioning the appellate proceeding, Order No. 871 is due to, and attempts to address concerns raised in, that case. The facts follow.

On Feb. 3, 2017, FERC granted Transcontinental Gas Pipe Line Co. (Transco) certificate authorization to build the Atlantic Sunrise Project. Environmental groups and landowners filed with FERC requests for rehearing and motions for a stay of construction pending disposition of their rehearing requests. In response, FERC issued a tolling order, but did not act on the stay motions for more than five months, and then denied them.

In late August 2017, a Pennsylvania federal judge presiding over Transco’s eminent domain action declared that the pipeline had a right to possess the properties in question. Weeks later, on Sept. 15, 2017, while the environmental groups and landowners’ rehearing requests were still pending, FERC authorized Transco to begin construction of the Project; the pipeline broke ground the same day. The environmental groups sought rehearing of the construction order, and FERC issued another tolling order. Eventually, FERC denied the first set of rehearing requests in December 2017 (more than nine months after rehearing was sought and three months after construction began) and the environmental groups second set of rehearing requests three months later (nearly six months after construction commenced).

On appeal to the DC Circuit, environmentalists and landowners argued that FERC’s certificate order failed to satisfy the requirements of the National Environmental Policy Act and that FERC denied their due process rights by authorizing construction while rehearing requests were still pending. In August 2019, a three-judge panel rejected the petitioners’ arguments. However, four months later, the DC Circuit sitting en banc vacated the panel’s opinion and required additional briefing on the due process argument. With the briefing wrapped up in March, the case is still pending before the DC Circuit. Against this backdrop, FERC issued ONatrder No. 871, essentially an olive branch informing the court that FERC is attempting to fix the problem on appeal. Whether strategy works is unclear, especially since Commissioner Glick issued a separate opinion, arguing that the rule does not go far enough — “We should adopt a practice of presumptively staying certificates pending Commission action on the merits of any timely filed requests for rehearing.”

On June 30, the DC Circuit issued an en banc opinion in Allegheny Defense Project v. FERC. After ruling that FERC does not have authority to issue “tolling orders, ” the court denied the petitions for judicial review.

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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