Rejecting more than 50 years of precedent, the D.C. Circuit Court of Appeals ruled Tuesday that FERC can no longer use tolling orders to delay judicial review of its rulings under the Natural Gas Act.

The 10-1 decision concluded that the commission’s use of tolling orders to stop the 30-day clock for acting on rehearing requests improperly prevents litigants from appealing FERC rulings indefinitely even as it allows gas pipeline companies to seize property under eminent domain and begin construction (Allegheny Defense Project, et al. v. FERC, 17-1098).

“The commission and private certificate holders use its tolling orders to split the atom of finality,” Judge Patricia A. Millett wrote for the majority. “They are not final enough for aggrieved parties to seek relief in court, but they are final enough for private pipeline companies to go to court and take private property by eminent domain. And they are final enough for the commission to greenlight construction and even operation of the pipelines. Tolling orders, in other words, render commission decisions akin to Schrödinger’s cat: both final and not final at the same time.

Under Section 19a of the Natural Gas Act (15 U.S.C. § 717r(a)), “unless the commission acts upon [an] application for rehearing within 30 days after it is filed, such application may be deemed to have been denied. No proceeding to review any order of the commission shall be brought by any person unless such person shall have made application to the commission for a rehearing thereon.”

FERC did not respond Tuesday when asked whether the ruling will also end the commission’s ability to use tolling orders to delay appeals of orders under the Federal Power Act.

[UPDATE: On July 2, Chairman Neil Chatterjee, a Republican, and Commissioner Richard Glick, a Democrat, issued a statement asking Congress “to consider providing FERC with a reasonable amount of additional time to act on rehearing requests involving orders under both the Natural Gas Act and the Federal Power Act.”

“We believe that any such legislation should make clear 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,” they said.]

Precedent Overturned

Millett said the D.C. Circuit erred since 1969 when it ruled in California Company v. Federal Power Commission (411 F.2d 720) that issuing a tolling order meant that FERC had “acted upon” the request under the language of the statute, and that parties must wait until the commission’s review of the request is complete before seeking relief from the court.

Millett said the court may overturn precedent when it decides that a previous holding was “fundamentally flawed” or when intervening developments — such as Supreme Court decisions — have “removed or weakened the conceptual underpinnings from the prior decision.”

In the 1969 ruling, the court “elevated policy concerns about ‘administrative and judicial problems’ over the plain statutory text” of the NGA, Millett wrote. “Of course, in so doing, that panel could not have foreseen the commission’s routinization of tolling orders, the unbounded length of tolling periods or, since California Co. involved rate setting, the severe consequences of the tolling practice for property owners. Stare decisis principles do not require us to continue down the wrong path.”

‘Virtually Automatic’

Millett wrote that FERC’s use of “tolling orders that do nothing more than buy itself more time to act on a rehearing application and stall judicial review has become virtually automatic.”

Over the last 12 years, the commission issued tolling orders in all 39 cases in which a landowner sought rehearing in a proceeding involving natural gas pipeline construction, taking about seven months on average from tolling order to actual rehearing decision.

Between 2009 and 2017, FERC issued tolling orders in response to 99% of all the requests for rehearing of pipeline certification decisions that it received, giving itself “roughly 10 times as long as the statute allots for it to act,” the court said.

For the 114 natural gas pipeline cases pending before FERC from Oct. 1, 2008, through Feb. 19, 2020, in which any party requested a rehearing, the commission authorized construction to begin before ruling on the merits of the rehearing request in 64% of the cases.

Atlantic Sunrise

The current case arose from FERC’s 2017 approval of Williams Companies’ Atlantic Sunrise project, an expansion of the company’s existing Transcontinental Pipeline, in which the commission took an extra nine months to act on rehearing. Transco initiated condemnation proceedings for the Atlantic Sunrise project less than two weeks after FERC granted it a certificate of public convenience and necessity on Feb. 3, 2017.

Transco told the Pennsylvania district court that, “as to this process, the eminent domain process, the [certificate] order is final” and beyond the court’s jurisdiction to review. Yet Transco and FERC told the D.C. Circuit that “the very same order was ‘non-final’ agency action for purposes of the homeowners’ effort to obtain judicial review,” Millett wrote.

Although the court dismissed FERC’s motion to dismiss landowner and environmental groups’ appeal of the Atlantic Sunrise order on procedural grounds, it concluded FERC acted properly in approving the project.

The homeowners and environmental groups said FERC’s reliance on the precedent agreements was arbitrary and capricious because those contracts only proved demand for export capacity, not domestic use of the natural gas being transported. The court said it did not need to address the homeowners’ and environmental associations’ objections to the reliance on precedent agreements because the commission also relied on other evidence of domestic demand.

Millett noted that Congress gave FERC four ways to act on rehearing requests under the NGA: grant or deny rehearing or abrogate or modify its order without further hearing.

The NGA requires litigants to seek appellate review within 60 days after the commission’s order on rehearing.

Even after a petition for appellate review is filed, the court said, FERC has the power to “modify or set aside” its findings and orders until the administrative record is filed in court, which is typically 40 days after the petition is served on the commission. “So in practice, even if an applicant files a petition for review immediately after a deemed denial, the commission will typically still have at least 70 days total” to act, Millett said.

New FERC Policy

The court’s ruling was foreshadowed by the judges’ skepticism during oral arguments on April 27. (See DC Circuit Skeptical of FERC Tolling Orders.)

On June 9, FERC issued a rulemaking saying it will no longer permit gas pipeline developers to begin construction until it acts on the merits of any rehearing requests (Order 871, RM20-15). (See FERC Revises Pipeline Policy on Landowner Concerns.)

However, in taking note of FERC’s action, Millett pointed out that the policy change does not prevent eminent domain proceedings from going forward while a rehearing request is pending on a certificate order.

The court said that although it generally gives agencies deference in interpreting ambiguous statutes, that “deference is available only when an agency interprets a statutory provision that Congress has charged it with administering through application of its expertise,” which does not apply in this case.

To “grant” rehearing “necessarily requires at least some substantive engagement with the application,” the court said.

But FERC’s tolling orders qualify them as being made only “for the limited purpose” of “afford[ing] additional time for consideration of the matters raised.”

“That is not a grant of rehearing of the challenged order; it is kicking the can down the road,” Millett said.

Dissent, Concurrence

Judge Karen LeCraft Henderson dissented on overturning the court’s previous interpretation of tolling orders.

“Section 717r(a) has not changed since [the] Natural Gas Act was enacted in 1938,” she wrote. “Overruling California Co. and its progeny because a majority of our court now believes those cases misconstrued Section 717r(a) renders stare decisis meaningless and draws the judiciary into a policymaking role that is the province of the elected branches.”

Judge Thomas B. Griffith filed a concurrence saying that the court had not gone far enough to address due process concerns and that tolling orders “are just one part of the legal web that can ensnare landowners in pipeline cases.”

Griffith noted that the majority opinion declines to rule on orders that “grant rehearing for the express purpose of revisiting and substantively reconsidering a prior decision” and provide “further hearing processes.”

“That limitation on today’s decision leaves the commission 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. “The commission would easily satisfy the act by setting a briefing schedule or by ordering the pipeline company to respond to the claims made in the application.”

While Tuesday’s ruling “rightly jettisons the commission’s signature stalling tactic,” Griffith said, “it doesn’t alter the fact that the commission can postpone review by granting rehearing.”