United States: PipelineLaw: DC Circuit Tosses FERC Bias Claim, OKs Use Of Tolling Orders

On July 10, 2018, in Delaware Riverkeeper Network, et al. v. Federal Energy Regulatory Commission, a panel of the United States Court of Appeals for the DC Circuit rejected an environmental group's claim that the Federal Energy Regulatory Commission's funding mechanism results in unconstitutional bias in favor of the pipeline industry. The court also rebuffed a due process attack on the Commission's use of "tolling orders" to avoid automatic denial of rehearing requests after 30 days.

The decision is noteworthy as it represents the latest rejection of similar constitutional challenges to FERC's operations and practices that pipeline opponents have been raising with increasing frequency. The ruling also highlights the difficulty of bypassing the Natural Gas Act's administrative rehearing and judicial review process through novel broadside attacks on the Commission's general practices and procedures.

Factual and Legal Background

The case arose from an interstate natural gas pipeline project proposed by PennEast Pipeline Co. through Pennsylvania and New Jersey. In 2016, while the project was still under FERC review, Delaware Riverkeeper Network and its director (collectively, Riverkeeper) filed an action in the US District Court for the District of Columbia alleging that FERC is unconstitutionally biased in favor of pipeline project applicants because, by law, the Commission is required to assess and collect funds sufficient to cover the agency's annual budget from the industries that it regulates. Riverkeeper also took aim at FERC's use of "tolling orders"—orders the Commission issues to help it comply with the 30-day statutory deadline for deciding requests for rehearing under the Natural Gas Act (NGA). Riverkeeper argued that tolling orders violate the due process rights of project opponents by delaying rehearing decisions while construction on approved projects moves forward, allegedly preventing meaningful review until it is too late.

Structural Bias Claims Can Be Filed in US District Court if They Do Not Challenge FERC Action in a Particular Case

Normally, the DC Circuit hears FERC-related cases as petitions to review final Commission orders under 15 U.S.C. § 717r(b)—not as appeals from the US District Court, as in Riverkeeper. The court, however, found that Riverkeeper properly brought its structural bias claim in the US District Court for the District of Columbia because it didn't challenge any particular FERC order; rather it attacked the constitutionality of the Commission's entire decision-making process in general. The court explained that its jurisdictional ruling in favor of Riverkeeper was "narrow" and stressed that any claim attacking a "specific FERC decision on the grounds of "'actual bias or some other improper motivation'" would have to be adjudicated through the petition for review procedure under 15 U.S.C. § 717r and not in the District Court. Riverkeeper's jurisdictional victory, however, would prove to be of no help on the merits of its claims.

FERC's Funding Mechanism Does Not Result in Unconstitutional Pro-Industry Bias

Like other federal agencies, FERC's annual budget is funded by appropriations from Congress. But, under 42 U.S.C. § 7178(a)(1), the Commission must "assess and collect" from the industries that it regulates "fees and annual charges in any fiscal year in amounts equal to all of the costs incurred by the Commission in that fiscal year." FERC does not keep the funds it collects, however, but instead must credit them to the general fund of the US Treasury.

Riverkeeper theorized that this funding mechanism incentivizes FERC to approve pipeline and other infrastructure projects such that it cannot be an "impartial and disinterested" adjudicator as required by Supreme Court due process precedent. In rejecting that claim, the DC Circuit observed that FERC has no control over the fees and charges collected from industry participants, as, by law, those funds must be credited to the US Treasury. Moreover, the amount FERC collects in any given year is unaffected by whether it approves or rejects the projects it reviews. When reviewed in light of similar challenges passing due process muster, the court concluded that "FERC's funding structure is clearly constitutional."

Tolling Orders Do Not Violate Due Process

By statute, if FERC fails to act on a rehearing application within 30 days, it is automatically denied. 15 U.S.C. § 717r(a). To obtain more time to consider the merits of a rehearing request, FERC sometimes issues orders known as "tolling orders" that allow the rehearing to remain pending for further consideration. Such orders neither grant nor deny the rehearing request, however, and do not stay an order issuing a Certificate of Public Convenience and Necessity unless the Commission specifically orders a stay.1 Accordingly, construction on an approved project typically continues until FERC ultimately rules on the merits of the rehearing request. Also, until the Commission issues a final decision on the rehearing request, a Court of Appeals petition for review of a FERC certificate order cannot be filed.2

Riverkeeper alleged that FERC "regularly" issues open-ended tolling orders that extend rehearing proceedings indefinitely, effectively delaying judicial review "until it is too late." The DC Circuit disagreed, noting that "[w]e have long held that FERC's use of tolling orders is permissible under the Natural Gas Act, which requires only that the Commission 'act upon' a rehearing request within 30 days, 15 U.S.C. § 717r(a), not that it finally dispose of it."

Additionally, Riverkeeper framed its due process challenge as a facial attack on the Commission's general practice of issuing tolling orders—not as a challenge of a tolling order in a particular case. Such a claim required the appellants to show that FERC's practice "violates due process in each and every instance, no matter the reasons for taking more time, the complexity of the application, or the amount of development allowed or blocked in the interim," according to the court. "The Constitution imposes no such categorical rule, and Riverkeeper makes no serious effort to contend otherwise," the court wrote. Moreover, if Riverkeeper had tried to make such a showing in the context of one or more particular cases, the District Court would have lacked jurisdiction to hear it, "as any final agency action in a certification proceeding would be subject to review only on a petition for review filed in the first instance in the court of appeals" pursuant to 15 U.S.C. § 717r(b).

Implications

Riverkeeper is a significant win for the natural gas transportation industry. In recent years, pipeline opponents have increasingly begun to challenge tolling orders and other aspects of FERC's operations and practices in an attempt to stop or delay approved projects. The DC Circuit's ruling is in accord with other recent federal court decisions rejecting similar tolling order challenges.3

The court's decision also highlights the difficulty of bypassing the NGA's administrative review process through novel "structural bias" claims or other broadside challenges of FERC's practices and procedures. As previously noted, an attack on FERC's impartiality, use of tolling orders or other agency operations or procedures cannot be brought directly in US District Court if it assails any Commission action in a particular certification proceeding. Rather, such a claim can only be brought as a petition for review in the US Court of Appeals under 15 U.S.C. § 717r, after the Commission's denial of a rehearing request. But, as the court in Riverkeeper explained, a proper facial attack that can be brought in the District Court requires a party to show that a particular Commission practice is unconstitutional or unlawful "in each and every instance, no matter the reasons for taking more time, the complexity of the application, or the amount of development allowed or blocked in the interim." Such a showing would seem to require at least some proof concerning the Commission's actions in one or more particular certification proceedings—the very proof that would deprive the District Court of jurisdiction. Thus, in emphasizing the "'narrowness of its jurisdictional holding'" in Riverkeeper and a similar ruling in 2014, the DC Circuit underscored the challenge of bringing a viable a structural bias claim against FERC in US District Court.

Footnotes

1 See 15 U.S.C. § 717r(c) ("The filing of an application for rehearing under subsection (a) shall not, unless specifically ordered by the Commission, operate as a stay of the Commission's order. The commencement of [judicial review] proceedings under subsection (b) of this section shall not, unless specifically ordered by the court, operate as a stay of the Commission's order.").

p>2 15 U.S.C. § 717r(b).

3 E.g., Mountain Valley Pipeline v. Easements to Construct, Operate and Maintain a Natural Gas Pipeline, No. 7:17-cv-00492, 2018 U.S. Dist. LEXIS 15724, at *18-22 (Jan. 31, 2018) (rejecting argument that FERC's "entire scheme" of issuing tolling orders denies due process by delaying adjudication of rehearing proceedings while a project continues); Transcontinental Gas Pipe Line Company, LLC v. Permanent Easement for 2.14 Acres, No. 17-cv-1725, 2017 WL 3624250 (E.D. Pa. Aug. 23, 2017) (same).

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