01 July 2020

D.C. Circuit Declares Tolling Orders Impermissible Under the Natural Gas Act

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.

FERC often uses tolling orders to extend its 30-day statutory deadline to consider complex issues surrounding rehearing requests of orders granting natural gas pipeline developers certificates of public convenience and necessity under NGA section 7. The practice is controversial in this setting because the initial order provides a developer with statutory authority to condemn private property for a pipeline right-of-way, while affected landowners must wait for FERC action on an application for rehearing of that order to seek judicial review. The order noted that between October 2008 and February 19, 2020, FERC had authorized construction to begin on a pipeline certificate project before resolving a rehearing request on the merits in 64 percent of cases.

The court acknowledged FERC’s position that it requires additional time to properly adjudicate complex issues beyond the NGA’s 30 days. It held that while FERC may not use tolling orders to change the 30-day review period required by statute, FERC is not required to actually decide the rehearing application on the merits within that 30-day window. FERC is permitted, for example, to grant rehearing for the express purpose of allowing additional time for supplemental briefing and further hearing processes to revisit, and substantively reconsider, a prior decision. Ultimately, this could result in a decision on the merits issuing at a date beyond the 30 days. This result would be unpopular for affected pipelines, however, following a final rule issued on June 9, 2020, that prevents FERC from issuing notices to proceed with construction under NGA sections 3 or 7 until (1) the time for filing of a request for rehearing has expired with no such request or (2) FERC has acted upon the merits of a timely filed request for rehearing.

A concurring opinion acknowledges the final rule as a “major step in the right direction” but notes that courts possess other tools to protect landowners. There is some speculation that FERC issued the final rule to sway the outcome of the court’s decision here. The lone dissent focused on stare decisis as grounds for upholding FERC’s authority to issue tolling orders.

While the court dismantled FERC’s tolling order practice, it did uphold the underlying certificate order, thereby denying the specific affected landowners any relief. FERC thus continued its streak of prevailing on the merits when its certificate orders are challenged in court, if the basis of the challenge is whether FERC properly applied the substantive portions of the NGA. However, cases pending and subject to tolling orders issued pursuant to the NGA or the Federal Power Act may now be vulnerable to challenge in court.