On June 30, 2020, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) ruled en banc 10-1 in Allegheny Defense Project v. FERC to invalidate the Federal Energy Regulatory Commission’s (FERC) common practice of issuing tolling orders to extend the time for deciding rehearing requests under the Natural Gas Act (NGA) beyond the 30-day deadline set forth in the statute. The court found that a tolling order, in which FERC “grants rehearing” for the limited purpose of affording it additional time to act on a rehearing request, does not constitute “action” upon the rehearing request as required by the NGA. The decision reversed the approximately 50-year old D.C. Circuit precedent upholding the tolling order practice as permissible. The court derided the practice as an unauthorized way for FERC to stall for time while precluding parties aggrieved by FERC orders from seeking judicial review.
On June 15, 2020, the Supreme Court of the United States decided United States Forest Service et al. v. Cowpasture River Preservation Association et al. (Cowpasture). In a 7-2 decision, the court authorized the U.S. Forest Service (Forest Service) to reinstate a special use permit under the Mineral Leasing Act of 1920 (Leasing Act) to allow the Atlantic Coast Pipeline (ACP) to cross a portion of the Appalachian National Scenic Trail (the Trail) that traverses the George Washington National Forest in West Virginia (GW Forest). The decision removes a significant obstacle to the ACP, but other legal roadblocks remain.
On June 9, 2020, the U.S. Federal Energy Regulatory Commission (FERC) issued Order No. 871, a Final Rule Limiting Authorizations to Proceed with Construction Activities Pending Rehearing (Final Rule). The Final Rule is likely to increase project costs for natural gas infrastructure by delaying their regulatory approvals. It prevents FERC from issuing notices to proceed with construction once a developer has received a certificate under sections 3 and 7 of the Natural Gas Act (NGA) until (1) the time for filing of a request for rehearing has expired with no such request or (2) FERC has acted on the merits of a timely filed request for rehearing. NGA sections 3 and 7 are the statutory provisions that empower FERC to authorize natural gas import and export facilities, such as liquefied natural gas (LNG) export terminals and natural gas pipelines, respectively.
As the novel coronavirus (COVID-19) continues to spread, Sidley is helping clients navigate the potential consequences to energy markets and attendant legal risks. The following frequently asked questions address actions by the U.S. Federal Energy Regulatory Commission (FERC) on April 2, 2020 in response to the current market conditions. This document updates energy regulatory FAQs published by Sidley on March 20, 2020.
The Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) announced yesterday they are taking steps to ensure that operators of the bulk electric system can focus their resources on keeping people safe and the lights on during this unprecedented public health emergency.
On June 4, 2019, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) offered non-binding advice to the Federal Energy Regulatory Commission (“FERC”) on how it should perform environmental reviews of greenhouse gas (“GHG”) emissions when it considers new natural gas pipeline projects. While the opinion in Birckhead v. FERC ultimately upheld FERC’s order permitting a new natural gas compressor station near Nashville, Tennessee, the court devoted several pages of dicta on what upstream and downstream GHG emissions data FERC should be gathering to comply with the National Environmental Policy Act (“NEPA”).
On March 21, 2019, the Federal Energy Regulatory Commission (“FERC”) initiated an Inquiry Regarding the Commission’s Policy for Determining Return on Equity (“ROE”) that was published in the Federal Register on March 28, 2019. FERC is seeking comments on this Notice of Inquiry (“NOI”) in eight general areas, including the role its base ROE plays in investment decision-making, and whether FERC should reevaluate how it uses the discounted cash flow (“DCF”) methodology to set ROEs for jurisdictional rates. The DCF methodology has guided cost-of-service ratemaking at FERC since the 1980s. It is used to ascertain an investor’s required return for investing in a firm, and is applied using a proxy group of firms that face similar risks to the entity whose ROE is being determined, which defines a “zone of reasonableness” for the ROE. The use of a proxy group is intended to satisfy the “Hope” and “Bluefield” standards (named for a pair of 20th Century U.S. Supreme Court cases) that an ROE is commensurate with returns on investments in other enterprises having corresponding risks to assure confidence in the financial integrity of the enterprise to allow it to maintain its credit and attract capital. Comments on the NOI are due on June 26, 2019 and Reply Comments are due on July 26, 2019.
On February 21, 2019, the Federal Energy Regulatory Commission (FERC) issued Trailblazer Pipeline Company LLC (“Trailblazer”), FERC’s first order addressing how FERC applies its Revised Income Tax Allowance Policy Statement, as further revised on rehearing (collectively “Revised Policy Statement”), to a pipeline organized as a pass-through partnership that is not a master limited partnership (“MLP”) in a Natural Gas Act (“NGA”) section 4 rate case proceeding. FERC issued the Revised Policy Statement in response to the U.S. Court of Appeals for the D.C. Circuit’s (“D.C. Circuit”) decision in United Airlines, Inc. v. FERC (“United Airlines”), which found that FERC could not permit a specific MLP pipeline to recover an income tax allowance in its rates without further explaining why this did not result in the MLP’s investors “double recovering” their income tax costs, based on a concern that the investors’ pre-tax return on equity (“ROE”) also provided such compensation when calculated using the discounted cash flow (“DCF”) methodology. United Airlines did not consider other types of pass-through entities, such as non-publicly traded partnerships, or alternative methodologies to calculate ROE and the Revised Policy Statement did not address them directly. (more…)
1 – Make-up of FERC Commissioners – FERC’s leadership already was uncertain heading into 2019 before the tragic passing of Commissioner and former Chairman Kevin McIntyre on January 3, 2019. Prior to his passing, the Commission achieved a full complement of five commissioners in December 2018, following the confirmation of Bernard McNamee who filled a spot made vacant by the August 2018 resignation of former Commissioner Robert Powelson. Commissioner McNamee is facing calls to recuse himself from certain FERC electric generation proceedings given positions he took on grid resiliency in his prior position at the Department of Energy, and he is certain to be scrutinized by environmental groups for positions he is anticipated to take on pipeline matters as a FERC commissioner. (more…)
In Lucia v. Securities and Exchange Commission, the Supreme Court held 7-2 that Securities and Exchange Commission (“SEC”) administrative law judges (“ALJs”) are “officers of the United States” subject to the Constitution’s appointments clause, rather than employees. The June 21, 2018 opinion for the Court was by Justice Kagan, and has implications for ALJs at the Federal Energy Regulatory Commission (“FERC”). (more…)