How Many Have Seen Schrödinger’s Cat?: D.C. Circuit Strikes Down FERC’s Longstanding Use of Tolling Orders in Response to Rehearing Requests

In Allegheny Defense Project, et al. v. FERC (Allegheny), the U.S. Court of Appeals for the D.C. Circuit, sitting en banc, ruled last week that the Federal Energy Regulatory Commission (FERC or Commission) could not delay reconsideration of its approval of gas infrastructure projects for the purpose of postponing judicial review. In essence, in a 10-1 decision, the court said FERC’s “tolling policy”—something used in every gas pipeline case (39 to be exact) of the last 12 years—violates the strictures of the Natural Gas Act (NGA). Specifically, the court found that FERC’s practice of tolling rehearing requests falls in direct conflict with the NGA’s 30-day deadline to act on such requests.

As background, the NGA requires a company seeking to build or operate a natural gas pipeline for use in interstate commerce to obtain a certificate of “public convenience and necessity” from FERC authorizing the pipeline’s construction and operation. 15 U.S.C. § 717f(c). The Commission “shall * * * issue[]” the certificate if it finds that the proposed project “is or will be required by the present or future public convenience and necessity.” 15 U.S.C. § 717f(e). Before a party aggrieved by a FERC decision can obtain judicial review, that party must file an application for rehearing with FERC. “Upon such application the Commission shall have power to [i] grant or [ii] deny rehearing or to [iii] abrogate or [iv] modify its order without further hearing.” 15 U.S.C. § 717r(a). If the Commission fails to take any of those actions “within thirty days after it is filed,” the “application may be deemed to have been denied.” 15 U.S.C. § 717r(a).

In Allegheny, FERC granted the Transcontinental Gas Pipe Line Co. (Transco) such a certificate for the Atlantic Sunrise pipeline project on February 3, 2017, and less than two weeks later, Transco initiated condemnation proceedings against the plaintiff landowners in the United States District Court for the Eastern District of Pennsylvania. The landowners and others filed applications for a rehearing, and about a month later, FERC responded by issuing a tolling order, which stated in part that the rehearing applications “will not be deemed denied by operation of law.” Not until nine months after the NGA’s statutory 30-day period expired did FERC take “action” to deny the applications for rehearing on the certificate order.

In Allegheny, the court’s majority found that FERC used tolling orders to give itself “roughly ten times as long as the statute allots” for it to take action. The court ultimately decided that if FERC fails to act on a rehearing application within thirty days, the application may be deemed denied, allowing the aggrieved party to proceed to federal court. Judge Millett wrote for the majority: “The commission has rewritten the statute to say that its failure to act within thirty days means nothing; it can take as much time as it wants; and until it chooses to act, the applicant is trapped, unable to obtain judicial review.” “But the commission has no authority to erase and replace the statutorily prescribed jurisdictional consequences of its inaction.”

The court explained the seemingly paradoxical operation of FERC’s approvals under its tolling policy: that FERC’s approvals were not final for purposes of allowing landowners to challenge them in court, but they were final for purposes of allowing developers to pursue eminent domain in court (i.e., once FERC issues an approval, the NGA authorizes the private party holding the certificate to exercise the governmental power of eminent domain and take “the necessary right-of-way to construct, operate and maintain” the pipeline, unless the property owner agrees to its use. 15 U.S.C. § 717f(h)). “Tolling orders, in other words, render commission decisions akin to Schrödinger’s cat: both final and not final at the same time,” Judge Millett wrote.

The brass tacks impact of the decision is that it allows landowners to challenge adverse decisions (i.e., FERC project approvals) more quickly without the delay accompanying a FERC tolling order. At the same time, the decision may incentivize a temporary halt to developers’ work—under the old tolling policy many developers that were granted a certificate order would continue to build during the tolling period.

Although future landowners get the benefit of quicker judicial review as a result of the court’s termination of FERC’s tolling orders, the landowners in Allegheny did not win their case on the merits: the court approved FERC’s endorsement of the completed Atlantic Sunrise project.

On July 6, 2020, FERC filed a motion for a 90-day stay of the issuance of the mandate to allow it time to assess how to implement the court’s decision, and to determine whether it will file a writ of certiorari in the U.S. Supreme Court.