07 May 2021

Federal Energy Regulatory Commission Clarifies Application of Rule Limiting Construction Activities

On May 4, 2021, the U.S. Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 871-B, an Order Limiting Authorizations to Proceed with Construction Activities. The order revises FERC regulations at 18 C.F.R. § 157.23(b) enacted in July 2020 following the issuance of Order No. 871.

The regulation now prohibits authorizations to proceed with construction for pipeline or liquefied natural gas (LNG) terminal facilities from issuing if a timely request for rehearing of a certificate order has been filed specifically opposing project construction, operation, or need until (1) the request is no longer pending before FERC, (2) the record of the proceeding has been filed with the court of appeals, or (3) 90 days have passed after the date that the request for rehearing may be deemed to have been denied under the Natural Gas Act’s (NGA) rehearing provisions at 15 U.S.C. § 717r(a).

The prior iteration of the rule had prohibited authorizations to proceed with construction until FERC had acted on the merits of any timely request for rehearing. That much broader rule, discussed at length in a prior Energy Landscape Blog here on Order No. 871, was the subject of several requests for rehearing and clarification.

As we explained, FERC initially issued Order No. 871 in anticipation of an en banc decision from the U.S. Court of Appeals for the District of Columbia Circuit in Allegheny Defense Project v. FERC (Allegheny) reviewing FERC’s authority to issue “tolling” orders to extend the time permitted to act on requests for rehearing. The court was concerned that landowners subject to condemnation proceedings arising out of FERC pipeline certificate orders under NGA section 7 had no legal recourse to petition a federal court for review of the certificate order while the matter was tolled. Hence, in theory, a pipeline exercising its statutory condemnation rights could later have that right revoked by an appellate court after pipeline construction was complete. FERC intended for its rule to limit a pipeline’s ability to condemn land until that landowner’s right to challenge the underlying certificate order in federal court became ripe.

However, Allegheny issued a mere three weeks after FERC issued Order No. 871, striking down the tolling order practice. This led several pipeline-aligned interests to question on rehearing whether Order No. 871 remained necessary and how FERC’s rule was intended to work in light of the court’s decision. Requesters also asked whether Order No. 871 should apply to LNG terminal facilities authorized under NGA section 3 given that no eminent domain authority attaches to authorization under that section of statute.

Rather than answer these rehearing questions directly, FERC issued Order No. 871-A on January 26, 2021, asking commenters to answer three new questions:

  • Would Order No. 871 apply in proceedings where rehearing requests raised non-construction-related issues, that is, tariff, rate, terms, or conditions of service?
  • Post-Allegheny, would the rule apply if a rehearing request were deemed denied due to Commission inaction after 30 days?
  • Can eminent domain be exercised while rehearing requests are pending before the Commission?

Order No. 871-B’s decision to circumscribe the regulation to those requests for rehearing reflecting opposition to project construction, operation, or need ensures that requests for rehearing that raise issues related only to a tariff, rate, terms, or conditions of service would not trigger the rule’s prohibition on construction. It also adds some time limitations on the authorization to proceed moratorium. FERC also stated that it was enacting a policy to presumptively stay an NGA section 7(c) certificate order during the 30-day period for seeking rehearing, that is, limiting the exercise of eminent domain authority granted under such certificates.  The stay would remain in place until the Commission resolves the rehearing request or 90 days following the date that a rehearing request is deemed denied. This policy is inapplicable where the pipeline developer has already, at the time of the certificate order, acquired all necessary property interests and for LNG construction, which does not implicate eminent domain.

FERC noted that it will decide whether to impose a stay depending on the particular circumstances of each proceeding. However, the revised rule does not limit its application to affected landowners opposing a project but to any protesting party.

Commissioner James Danly dissented on grounds that Allegheny functionally mooted the need for Order No. 871 and that FERC lacked statutory authority to presumptively stay a Section 7(c) certificate. Commissioner Mark Christie filed a separate concurrence on grounds that Order No. 871-B improved Order No. 871 by providing clear time limits on construction delays, providing a clear policy for future cases, and protecting the right of developers to pursue development activities including voluntary land acquisition. Commissioner Neil Chatterjee did not participate in the rulemaking.

The new regulations take effect 30 days after date of publication in the Federal Register, which has yet to occur. It is anticipated that pipeline industry participants will appeal the final rule.

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