D.C. Circuit Affirms Atlantic Sunrise Orders

But FERC’s Use of Tolling Orders to Delay Ruling on Requests for Rehearing Comes Under Fire
Mark Reishus
August 5, 2019 at 11:42:03 ET
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On Aug. 2, 2019, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) affirmed the Commission’s orders permitting Transcontinental Gas Pipe Line Co. LLC (Transco) to proceed with the construction and operation of the Atlantic Sunrise Project (Project), a $2.5 billion natural gas pipeline expansion in Pennsylvania, Maryland, North Carolina and South Carolina designed to increase firm incremental natural gas transportation service on Transco’s system by 1,700,002 dekatherms per day from northern Pennsylvania to Alabama and to interconnects with existing pipelines serving Florida markets. The D.C. Circuit denied the petitions for review, filed by environmental associations whose members live and work in the areas affected by the Project (Environmental Associations) and individual homeowners whose property was used for the Project (Homeowners), “[b]ecause the challenges to the Commission’s decision cannot surmount the deferential standards of agency review and binding circuit precedent.”

In a concurring opinion, one circuit judge blasted the “Kafkaesque regime” that keeps homeowners “in seemingly endless administrative limbo while energy companies plow ahead seizing land and constructing the very pipeline that the procedurally handcuffed homeowners seek to stop.”

Procedural History

The court explained that, in March 2015, Transco “applied for a certificate of public convenience and necessity to build the Atlantic Sunrise Project. After notice and public comment, the Commission issued a final Environmental Impact Statement [(EIS)] in December 2016. In that [EIS], the Commission concluded that ‘neither construction nor operation of the Project would significantly contribute to [greenhouse-gas] cumulative effects or climate change.’ ”

On Feb. 3, 2017, in Transcontinental Gas Pipe Line Co. LLC, Order Issuing Certificate, 158 FERC ¶61,125 (2017) [Docket No. CP15-138-000] (Certificate Order), FERC granted the certificate requested by Transco.

On March 13, 2017, after Environmental Associations and Homeowners filed requests for rehearing of the Certificate Order and motions for a stay of construction pending disposition of their rehearing requests, FERC issued Transcontinental Gas Pipe Line Co. LLC, Docket No. CP15-138-001 “Order Granting Rehearing for Further Consideration” (March 13, 2017) (Unreported) (Certificate Tolling Order). In the Certificate Tolling Order, FERC acknowledged that timely requests for rehearing of the Certificate Order had been filed, and explained that, in the absence of Commission action within 30 days from the date the rehearing requests were filed, “the request for rehearing (and any timely requests for rehearing filed subsequently) would by deemed denied. 18 C.F.R. §385.713 (2016). In order to afford additional time for consideration of the matters raised or to be raised, rehearing of the Commission’s order is hereby granted for the limited purpose of further consideration, and timely-filed rehearing requests will not be deemed denied by operation of law. Rehearing requests of the above-cited order filed in this proceeding will be addressed in a future order.”

On Aug. 23, 2017, “a Pennsylvania federal district court presiding over Transco’s eminent domain action entered an order that declared Transco’s ‘right to immediate possession of the properties in question,’ based on the presumed validity of FERC’s Certificate Order.” The district court rejected the Homeowners’ objections as “attacks on the FERC order itself,” which “can only be challenged in front of FERC, and then in the [D.C. Circuit].” (The U.S. Court of Appeals for the Third Circuit affirmed this decision in 2018).

On Aug. 31, 2017, in Transcontinental Gas Pipe Line Co. LLC, Order Denying Stay, 160 FERC ¶61,042 (2017) [Docket No. CP15-138-001], FERC denied the motions for stay.

On Sept. 15, 2017, while the Environmental Associations’ and Homeowners’ requests for rehearing were still pending before the Commission, FERC staff issued an unreported order authorizing Transco to begin construction of the Project (Construction Order). The D.C. Circuit noted that “Transco broke ground that same day.”

On Oct. 17, 2017, after the Environmental Associations filed a timely motion for rehearing of the Construction Order and an order halting construction, FERC issued another tolling order (Construction Tolling Order).

On Dec. 6, 2017, in Transcontinental Gas Pipe Line Co. LLC, Order on Rehearing, 161 FERC ¶61,250 (2017) [Docket Nos. CP15-138-001 and CP15-138-004] (Certificate Rehearing Order), FERC denied the Environmental Associations’ petitions for rehearing of the Certificate Order, “more than nine months after rehearing was sought and three months after construction began.”

On March 1, 2018, “nearly six months after construction commenced,” FERC denied rehearing of the Construction Order. (Transcontinental Gas Pipe Line Co. LLC, Order Denying Rehearing, 162 FERC ¶61,192 (2018) [Docket Nos. CP15-138-002 and CP15-138-003] (Construction Rehearing Order).)

Petitions for Review

In their petitions to the court, the Environmental Associations and Homeowners challenged the Certificate Order, the Certificate Tolling Order, the Construction Order, the Construction Tolling Order, and the Certificate Rehearing Order. The D.C. Circuit focused on the Certificate Rehearing Order because it encompasses all of the petitioners’ claims for review “and is the final agency decision greenlighting the Project.”

The petitioners raised three claims of error: (1) FERC improperly conducted its environmental assessment under the National Environmental Policy Act (NEPA); (2) FERC failed to substantiate market need for the Project as required by the Natural Gas Act (NGA); and (3) FERC denied the Environmental Associations and Homeowners due process by authorizing construction to commence before the issuance of the Certificate Order could be judicially reviewed.

For the following reasons, the D.C. Circuit denied the petitions for review.

NEPA Arguments

NEPA requires the Commission to consider and disclose the environmental effects of the actions it certifies. “The Commission may fulfill this requirement by compiling an [EIS], which must consider, among other things, the proposed project’s ‘indirect’ environmental effects,” the D.C. Circuit explained.

According to the court, the petitioners made three specific arguments related to NEPA: (1) FERC did not factor downstream greenhouse-gas emissions into its evaluation of the Project’s environmental impacts; (2) FERC impermissibly segmented its environmental review by failing to consider the synergistic effect of the Project on emissions associated with a different pipeline — the Southeast Market Pipeline; and (3) FERC was deficient in its analysis of an alternative site for the Project called the Conestoga Route.

The D.C. Circuit agreed with the petitioners that “customers’ burning of the natural gas that the Project transports will produce greenhouse-gas emission, … that NEPA required the Commission to consider both the direct and indirect environmental effects of the Project, and that, despite what the Commission argues, the downstream greenhouse-gas emissions are just such an indirect effect.” However, “that is as far as the argument gets them, because the Commission already took the steps the Homeowners and Environmental Associations request.”

The court observed that FERC addressed downstream emissions in the EIS, the Certificate Order, and the Certificate Rehearing Order. “In particular, the Commission estimated the amount of [carbon dioxide] emissions resulting from the gas that the Project would transport and predicted that those emissions would be partially offset by reductions in higher carbon-emitting fuel that the Project’s natural gas would replace. Neither the Homeowners nor the Environmental Associations have identified what more the Commission should have said. That failure is fatal. Unsubstantiated objections are not enough to stop an agency’s action.”

Improper segmentation occurs when FERC creates separate EISs for interconnected pipelines that should have been evaluated as a single project. However, FERC “has no duty to consider the environmental effects of a separate project if the project in question has ‘substantial independent utility.’ … The record supports the Commission’s determination that the Southeast Market Pipeline and the Project are independently justified and that each has its own distinct utility. … That is because, even if the Project were never built, the Southeast Market Pipeline still would be connected to enough natural gas supply to exceed its capacity. … On this record, that disproves any claim of improper segmentation.”

FERC is required by NEPA to identify reasonable alternatives to the contemplated action and discuss the relevant issues and opposing viewpoints concerning them. The court found that FERC’s consideration of the Conestoga Route “passes NEPA muster. The Commission ‘look[ed] hard at the environmental effects of its decision’ by comparing the proposed route with the Conestoga Route across highly detailed criteria. … In doing so, the Commission openly grappled with the factors favoring the Conestoga Route and reasonably explained why the proposed route was nonetheless superior.” Specifically, FERC acknowledged that the Conestoga Route was shorter and would follow existing rights-of-way for more of its length than the proposed route would, “but it placed more weight on the proposed route’s virtues, including that it would cross fewer recreational areas and would avoid potentially dangerous elevation changes. That suffices for NEPA.”

Showing of Market Need

Under the NGA, the applicant must show market need before the Commission can issue a certificate of public convenience and necessity for the proposed pipeline project. The applicant can do so by presenting evidence of precedent agreements for natural gas transportation service.

The D.C. Circuit concluded that FERC “held Transco to this obligation. Its finding of market need rested on the existence of contracts with shippers for 100% of the Project’s capacity. That alone is enough. … And the Commission did not stop there. It also relied on comments by two shippers and one end-user, as well as a study submitted by one of the Environmental Associations, all of which reinforced the demand for the natural gas shipments.”

Due Process

The D.C. Circuit ruled that its precedent forecloses the petitioners’ claims that FERC’s authorization of construction while their rehearing requests were still pending denied them due process.

According to the court, analysis of a due process claim requires two essential inquiries. First, is there a liberty or property interest of which a person has been deprived? Second, were the procedures followed by the government in encroaching on those interests constitutionally sufficient?

The Environmental Associations argued that liberty and property interests are guaranteed by the Pennsylvania Constitution and the review procedures contained in the NGA. However, the D.C. Circuit explained that it has already rejected those claims in other proceedings. Thus, the Environmental Associations failed to establish the first prong of the due process analysis.

“The Homeowners, for their part, lose on the second prong of the due-process analysis. They argue that the Commission’s delay in acting on their rehearing petitions while authorizing construction to start ‘denied [them] the right to be heard on whether Transco’s taking of their property actually satisfies the public use requirement of the Fifth Amendment.’ … But, again, circuit precedent says otherwise. We have held that, as long as FERC’s public-convenience-and-necessity determination is not legally deficient, it necessarily satisfies the Fifth Amendment’s public-use requirement. See Midcoast Interstate Transmission, Inc. v. FERC, 198 F.3d 960, 973 (D.C. Cir. 2000). The Homeowners make no claim that they were deprived of a meaningful opportunity to be heard as part of the Commission’s proceedings leading up to its issuance of the Certificate Order, and they make no effort to distinguish (or even acknowledge) our holding in Midcoast.”

A Second Look Is Overdue

In a concurring opinion lengthier than the majority’s opinion, Circuit Judge Patricia Millett acknowledged that her hands are tied by D.C. Circuit precedent, but asserted that “the Commission has twisted our precedent into a Kafkaesque regime. Under it, the Commission can keep homeowners in seemingly endless administrative limbo while energy companies plow ahead seizing land and constructing the very pipeline that the procedurally handcuffed homeowners seek to stop. The Commission does so by casting aside the time limit on rehearing that Congress ordered — treating its decision as final-enough for the pipeline companies to go forward with their construction plans, but not final for the injured landowners to obtain judicial review. This case starkly illustrates why that is not right.”

Although she agreed with the outcome of the case given circuit precedent, Millett wrote separately to share her concern “about fair process and, in particular, the ability of those who are directly injured — the individuals whose property is taken in whole or in part by Commission order — to have their day in court before it is too late.”

According to Millett, FERC’s use of tolling orders “jurisdictionally locked the Homeowners out of federal court. … Indeed, when the Homeowners petitioned this court for review of both the Certificate Order and the Certificate Tolling Order, both the Commission and Transco were quick to seek dismissal of the petitions as ‘incurably premature’ because the rehearing requests had not yet been resolved. … While non-final for the [Homeowners], the Commission’s order was still final enough for Transco to prevail in an eminent domain action in a Pennsylvania federal district court and to acquire the needed easements over [their] land.”

Eight days after the district court’s eminent domain decision in favor of Transco, FERC denied the Homeowners’ request for stay. “The Commission reasoned that the Homeowners’ objections to Transco bulldozing and blasting its pipeline into their homesteads were nothing more than ‘generalized claims of environmental harm [that] do not constitute sufficient evidence of irreparable harm that would justify a stay.’ Two weeks later, apparently still too busy to act on the Homeowners’ rehearing petition, the Commission nonetheless found the time to issue a Construction Order authorizing Transco to start construction on the Homeowners’ land. … Which Transco promptly did. … And when the 30-day time limit for action on a request for rehearing of the Construction Order approached, guess what? The Commission once again issued an order that did nothing but give the Commission more time to decide. … Meanwhile, Transco’s construction continued apace. And the Homeowners remained trapped before the agency.”

In Millett’s view, the D.C. Circuit should put an end to “this administrative quagmire” created by its precedent. “A scheme that walls homeowners off from timely judicial review of the Commission’s public-use determination, while allowing eminent domain and functionally irreversible construction to go forward, is in substantial tension with statutory text and runs roughshod over basic principles of fair process.”

FERC has interpreted the NGA such that tolling orders satisfy the statutory requirement to act upon an application within 30 days. However, Millett interprets the requirement as giving the Commission 30 days “to fish or cut bait. Trapping an aggrieved party in administrative limbo while the Commission spends several months thinking about whether to go fishing is not an option. … But circuit precedent says otherwise. We have held that the Commission’s tolling orders quality under the statute as an action upon the rehearing request.”

According to Millett, FERC has taken the D.C. Circuit’s patience “and turned it into a license to routinely blow past Congress’s deadline, granting itself as much time as it desires to act on rehearing requests. One recent study showed that, between 2009 and 2017, the Commission issued tolling orders in response to 99% of requests for rehearing of pipeline certification decisions. … FERC has issued a boilerplate tolling order in response to every motion for rehearing of a pipeline certification decision since 2017 too.”

Millett point out that the precedent supporting the use of tolling orders originally involved disputes over money, not property. “Because disputes over monetary payments can be fixed later, the consequences of Commission delay were temporary and remediable. One side or the other would have to bear the financial cost while administrative and judicial litigation went forward. The tolling order just assigned that burden to the party that lost before the agency. But allowing the Commission to take its time while private property is being destroyed is another thing altogether.”

The NGA gives “any holder of a certificate” the right of eminent domain. “On top of that, courts involved in eminent domain proceedings — including in this case — routinely treat the Commission’s non-final certificate order as final and conclusive evidence that the taking serves a public purpose. … Congress further directed that the filing of an application for rehearing ‘shall not, unless specifically ordered by the Commission, operate as a stay of the Commission’s [certificate] order.’ … Of course, in doing so, Congress presumably expected that rehearing decisions would be resolved within 30 days, as the statute says. … In other words, as Congress designed the rehearing system, eminent domain proceedings would likely not conclude before the Commission acted on rehearing and afforded the applicant an opportunity for judicial review of the public-use determination.” FERC’s use of tolling orders “upends that balanced framework.”

The “imbalanced” framework currently in place treats the Commission’s certificate orders as conclusive in eminent domain proceedings while shielding those orders from judicial scrutiny as non-final. “Making that bad situation worse, the Commission that says it is too busy to act on rehearing applications nevertheless consistently manages to find the time to grant orders authorizing construction to go forward while rehearing is still pending. … The result is that the Commission can toll until the cows come home and thereby forestall judicial review while people’s homesteads are being destroyed. And the Commission knows exactly what it is doing with its repeated issuance of cookie-cutter tolling orders.”

Millett does not think much of FERC’s routinely given advice to applicants that they proceed at the risk the Commission may have a change of heart on rehearing of certificate orders. “Perhaps such words work when the certificate orders just involve monetary payments for fees or rates. But they ring hollow in eminent domain and construction cases like this. Once the property is in the company’s possession, the land is cleared, trees are cut down, and the pipeline is cemented into a family’s backyard, it is difficult if not impossible to unshuffle the deck. The damage to property rights, property values, and the environment is done.”

D.C. Circuit precedent supporting FERC’s use of tolling orders while allowing eminent domain proceedings and construction to proceed before landowners can obtain judicial review “skates on thin constitutional ice,” Millett argued. Under Supreme Court precedent, determining whether FERC’s procedures for allowing private third parties to build on private land pass constitutional muster requires weighing: (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used; and (3) the government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. “That balance weighs against the Commission’s current process of saddling landowners with all the harm and risk of delay in its own decisionmaking. And it weighs heavily in favor of reading the statute’s 30-day time limit as the plain text prescribes to avoid this constitutional question.”

If, as it insists, the Commission needs more than 30 days to resolve issues raised on rehearing, it “should raise that argument with Congress, which prescribed the 30-day timeframe for decision.” Alternatively, it “could try working with rehearing applicants to obtain more time by, for example, agreeing to hold its hand on construction orders or staying initial certificate orders to forestall eminent domain proceedings before it takes final action. If that is too administratively burdensome, then the Commission could try the easiest path of all: take absolutely no action on the rehearing application. That would have the effect of denying the request as a matter of law. … And that approach would have opened the courthouse doors to the Homeowners four months before the eminent domain decision and five months before construction started.”

Even if the Commission’s substantive case is a winning one, i.e., that the public need for the Project was such that FERC’s finding of public convenience and necessity was lawful, the Homeowners’ right to procedural due process is absolute and does not depend upon the substantive merits. “The question is not whether the [Homeowners] will win; it is only whether they have a right to be fairly and timely heard before their ‘federal claim dies aborning’ in the Commission’s process.”

Millett concluded that, in cases involving private property rights, FERC “has transformed this court’s decisions upholding its tolling orders into a bureaucratic purgatory that only Dante could love. While I acknowledge that circuit precedent currently forecloses the Homeowners’ constitutional challenge to the tolling orders, this case starkly illustrates why a second look by us or by the Commission is overdue.”

For More Information

See ¶608-2: Certificate Proceedings for more information on eminent domain.

Allegheny Defense Project .v FERC, No. 17-1098 (D.C. Cir. Aug. 2, 2019).