Chevron Overturned: An Avalanche Of Litigation In The Energy Industry?

Introduction

On June 28, 2024, the U.S. Supreme Court issued a landmark decision in Loper Bright Enterprises v. Raimondo,¹ which overturned the Chevron deference doctrine that had previously guided judicial review of federal agency interpretations of statutes. The decision is expected to have wide-reaching impacts across various industries that are regulated by federal agencies. This client alert focuses on the potential impacts of the Loper Bright decision on the energy industry, specifically as it relates to regulations issued by the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC).

From Chevron to Loper Bright

The Chevron doctrine, created by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984)², provided a two-step framework for courts to determine whether to defer to an agency's interpretation of a statute. Under Chevron, courts faced with challenges to agency actions that have the force of law first asked whether Congress had directly addressed the question at issue. If Congress's intent was clear, that was the end of the matter. However, if the statute was silent or ambiguous, courts would then determine whether the agency's interpretation was reasonable. If it was, the court would defer to the agency's interpretation, even if it preferred a different one.

In Loper Bright, though, the Supreme Court overturned Chevron, ruling that courts must now exercise independent judgment when deciding whether an agency has acted within its statutory authority. The Court emphasized that courts are not required to defer to agency interpretations simply because a statute is ambiguous, thereby removing the safety net that Chevron provided to federal agencies.

Chevron's limited history in CFTC and FERC case law

While courts reviewing CFTC and FERC actions often have not relied on Chevron in their decisions, the doctrine has played a role in certain key cases. For example, in New York v. FERC (2002),³ the Supreme Court relied on Chevron to uphold FERC's landmark Order No. 888 restructuring the electric industry. In that case, the Court upheld FERC's assertion of jurisdiction over unbundled retail transmissions without relying on Chevron, but also upheld FERC's decision not to regulate bundled retail transmissions by referring to the lower court's ruling, which was based on Chevron deference.

Chevron was also invoked in South Carolina Public Service Authority v. FERC (2014),⁴ where the D.C. Circuit applied Chevron to uphold parts of FERC's Order No. 1000 related to regional transmission planning and cost allocation. More recently, in Solar Energy Industries Association v. FERC (2023),⁵ the U.S. Court of Appeals for the Ninth Circuit relied on Chevron deference to uphold Order No. 872, which revised FERC's Public Utility Regulatory Policies Act regulations.

Chevron has also been invoked in cases challenging CFTC actions, although to a lesser degree. For example, the Southern District of New York in United States CFTC v. Hunter Wise Commodities⁶ relied on Chevron to accept the CFTC's determination to rely on securities law precedent in interpreting its own manipulation statute. Further, in CFTC v. Fleury (2010),⁷ the U.S. District Court for the Southern District of Florida performed a lengthy Chevron analysis before deferring to the CFTC's interpretation of what constitutes a "futures contract." Moving forward, the absence of Chevron deference means agencies like the CFTC and FERC will need to be more meticulous in their rulemaking and ensure that their statutory interpretations can withstand judicial scrutiny without a cushion of deference. While the immediate impact may be limited, the long-term effects could include a more cautious approach to rulemaking and an increase in litigation as courts and litigants adjust to the new legal landscape.

Limited reliance; limited impact?

While the overturning of Chevron is a significant development, its immediate impact on CFTC and FERC regulations may be less pronounced than in other areas of federal regulation. As noted above, courts have not historically relied heavily on Chevron when reviewing the actions of these two agencies. Empirical evidence shows that a majority of CFTC and FERC cases have been decided without invoking Chevron deference.

Further, while Chevron deference is now gone, courts may still grant "respect" to agency interpretations under the Skidmore standard,⁸ based on the agency's expertise and the persuasiveness of its reasoning. Therefore, even in the absence of the Chevron doctrine, courts may still find ample support to defer to CFTC and FERC decisions.

Not so fast

Nonetheless, the removal of Chevron deference as a safety net undoubtedly opens new doors for potential litigants to succeed in challenges to agency actions and, perhaps more important, to feel strongly enough about a case to bring a challenge in the first place. While it is true that courts have not historically needed the Chevron doctrine in order to uphold CFTC and FERC actions (at least compared to certain other regulatory agencies), potential litigants may have been dissuaded from bringing potentially difficult challenges in the past due to the high bar set by the Chevron doctrine. Now, however, without the fallback of Chevron deference, courts will be required to exercise independent judgment in reviewing agency interpretations of their statutory authority. This shift will likely encourage litigants to challenge agency actions more frequently.

Energy companies may therefore find it easier to challenge agency rulemakings that they view as overly restrictive or not clearly supported by statute. Without Chevron, there is a higher likelihood that courts will scrutinize agency actions more closely, which we can already see in practice. For example, on July 2, 2024, the Supreme Court vacated and remanded Edison Electric Institute v. FERC⁹ to the D.C. Circuit court for reconsideration in light of Loper Bright. This development demonstrates that the elimination of Chevron deference will not be without consequence.

Finally, we note that while the Supreme Court did not automatically overturn prior cases that relied on Chevron deference, it did indicate that courts may reevaluate those decisions considering a "special justification." How courts will ultimately interpret that standard is yet to be seen, but it opens new avenues for potential litigants to challenge any prior CFTC or FERC cases that relied on Chevron.

To be sure, the removal of Chevron deference will be particularly felt in cases involving nuanced statutory interpretations where the agencies' authority is less clear, but nuanced legal interpretations are not uncommon in regulatory law. Agencies will therefore likely weigh their actions more carefully going forward in order to ensure that they would not need the backstop of Chevron to support their determinations.

Conclusion

The Supreme Court's decision in Loper Bright marks a significant shift in the judicial review of federal agency actions. While the immediate impact on CFTC and FERC regulations may be limited, the decision also presents new opportunities for energy companies to shape the regulatory environment. The energy industry should prepare for an uptick in litigation and potentially more unpredictable outcomes as courts navigate this new terrain. We will continue to monitor developments in this area and provide updates as the implications of Loper Bright become clearer.

Footnotes

1 Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ___ (June 28, 2024).

2 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).

3 New York v. FERC, 535 U.S. 1 (2002).

4 South Carolina Public Service v. FERC, No. 12-1232 (D.C. Cir. 2014).

5 Solar Energy Indus. Ass'n v. FERC, 80 F.4th 956 (9th Cir. 2023).

6 United States CFTC v. Hunter Wise Commodities, LLC, 21 F. Supp. 3d 1317 (S.D. Fla. 2014).

7 CFTC v. Fleury & Giovanni Fleury Invs., Inc., No. 03-61199, 2010 U.S. Dist. LEXIS 132594 (June 18,2010, S.D. Fla. 2010).

8 Skidmore v. Swift & Co., 323 U.S. 134 (1944).

9 Edison Elec. Inst. v. FERC, No. 22-1246 (U.S. July 2, 2024).