For Whom the FERC Tolls: Federal Court Rejects Agency “Tolling Orders”

For Whom the FERC Tolls: Federal Court Rejects Agency “Tolling Orders”

Legal Sidebari
For Whom the FERC Tolls: Federal Court
Rejects Agency “Tolling Orders”
September 8, 2020
In Allegheny Defense Project v. FERC, the U.S. Court of Appeals for the District of Columbia Circuit
(D.C. Circuit) addressed the legitimacy of “tolling orders,” a longstanding procedural tool utilized by the
Federal Energy Regulatory Commission (FERC) to administer the Natural Gas Act (NGA). FERC’s use
of tolling orders, which is not expressly authorized by statute, has long been a source of controversy,
drawing criticism from environmental groups, state attorneys general, and FERC Commissioners, among
others. Nonetheless, until this year, the practice had been widely used and general y accepted. However,
in Allegheny Defense Project, the D.C. Circuit rejected FERC’s use of a tolling order, and in so doing
created uncertainty about the regulatory process for pipeline certification and construction as wel as other
administrative efforts to prolong deadlines through the use of tolling orders.
After an overview of the NGA and FERC’s use of tolling orders, this post analyzes the D.C. Circuit’s
Allegheny Defense Project decision and examines its potential impact.
Overview of Tolling Orders Under the NGA
The NGA creates the federal framework for regulation of interstate natural gas pipelines and wholesale
natural gas transactions administered by FERC. Among other things, the NGA requires a company
seeking to build or operate an interstate natural gas pipeline to obtain a “certificate of public convenience
and necessity” from FERC. The NGA also empowers holders of these certificates to exercise the power of
eminent domain in order to obtain “the necessary right-of-way to construct, operate and maintain” the
pipeline, assuming the holder has tried and failed to obtain the rights through negotiation with the
landowner. The NGA does not authorize immediate judicial review of a FERC decision to grant a
certificate of public convenience and necessity. Instead, anyone who wishes to appeal these decisions
must first apply for rehearing at FERC—and wait for FERC to either deny rehearing or reach a
conclusion on the merits—before they can seek judicial review. Section 717r(a) of the NGA states:
Upon such application the Commission shall have power to grant or deny rehearing or to abrogate
or modify its order without further hearing. Unless the Commission acts upon the application for
rehearing within thirty days after it is filed, such application may be deemed to have been denied.
No proceeding to review any order of the Commission shall be brought by any person unless such
person shall have made application to the Commission for a rehearing thereon.
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The NGA’s 30-day deadline for FERC to “act[] upon” a request for rehearing is the focal point of a
longstanding dispute over the common FERC practice of issuing “tolling orders.” Under this practice,
FERC issues a tolling order within 30 days of a request for rehearing that grants rehearing “only for the
limited purpose of further consideration.” The purpose of the process is to provide the agency more time
to review rehearing requests without triggering the 30-day automatic denial by agency inaction under
Section 77r(a) of the NGA. Under this practice, there is no deadline by which FERC must reach a
conclusion on a tolled rehearing request. Therefore, a tolling order may indefinitely delay any efforts by
aggrieved parties to obtain judicial review of FERC’s decision to grant a certificate of public convenience
and necessity. This includes landowners who may be impacted by the exercise of eminent domain by the
certificate holder and parties concerned about the environmental impact of the pipeline construction and
operation. Notably, litigation to exercise eminent domain can commence while the certificate of public
convenience and necessity is stil potential y subject to FERC rehearing, although the certificate holder
bears the risk of construction costs should the certificate be withdrawn or amended at rehearing or on
appeal.
The D.C. Circuit’s Allegheny Defense Project Decision involves the Atlantic Sunrise Pipeline, whose
proposed route included a 200-mile segment through southeastern Pennsylvania. FERC granted a
certificate of public convenience and necessity to its developer, Transcontinental Gas Pipe Line Company
(Transco), on February 3, 2017. Less than two weeks later, Transco initiated condemnation proceedings
against two Pennsylvania homeowners in the U.S. District Court for the Eastern District of Pennsylvania.
The homeowners and environmental groups both applied for rehearing of Atlantic Sunrise’s certificate
order at FERC. FERC quickly responded with a tolling order granting rehearing “for the limited purpose
of further consideration.” In August of 2017, the district court granted a series of injunctions giving
Transco the necessary rights of way through the homeowners’ property. Transco broke ground on the
project in September of 2017 pursuant to a FERC order authorizing the start of construction. In December
of 2017, approximately nine months after granting the rights-of-way and four months after Transco began
construction, FERC denied rehearing of the certificate order to open the door for the parties to chal enge
FERC’s decision in court.
The homeowners’ and environmental groups’ case was first heard by a three-judge panel at the D.C.
Circuit which rejected their arguments and ruled in favor of FERC and the pipeline. The court
subsequently granted a petition for rehearing of that decision en banc (i.e., before the full panel of D.C.
Circuit judges). This en banc decision focused on whether the language of NGA Section 717r al ows for
tolling orders like the one that al owed Transco to proceed with eminent domain proceedings and
construction of the Atlantic Sunrise pipeline without affording parties a chance to chal enge FERC’s
decision in court.
The court framed the question before it explicitly:
Does the Federal Energy Regulatory Commission ‘act[] upon’ an application for rehearing within
the meaning of Section 717r of the Natural Gas Act by issuing a tolling order that does nothing more
than prevent the application from being deemed denied by agency inaction and preclude the
applicant from seeking judicial review until the Commission acts?
As the court stated, tolling orders can “prevent aggrieved parties from obtaining timely judicial review of
the Commission’s decision.” The court noted that this practice can “split the atom of finality,” al owing
pipeline companies to go to court to take private property by eminent domain but not al owing aggrieved
parties to chal enge the agency’s decisions. After recounting other judicial and administrative opinions
highlighting this “problem,” the court turned to interpreting the plain language of the NGA to determine if
it al owed for tolling orders.
The court began its analysis by finding that the usual deference in statutory interpretation afforded to
agencies under Chevron U.S.A. Inc. v. Natural Res. Defense Council, Inc. was not applicable here.
According to the court, Chevron deference “is available only when an agency interprets a statutory

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provision that Congress has charged it with administering through application of its expertise” and that
“statutory provisions addressing the jurisdiction of federal courts do not fit the mold.” FERC argued that
it should be entitled to deference because the provision is not about judicial jurisdiction, but about its own
jurisdiction to entertain rehearing requests. The court rejected this argument, noting that it “slices the
salami a little too thinly.” The court concluded that “the responsibility for interpreting Section 717r(a)
fal s to the courts, not to the Commission,” and, thus, Chevron deference is inapplicable in this context.
The court next evaluated whether Section 717r al ows FERC to issue the tolling orders. It concluded that
it does not. The court analyzed Section 717r(a)’s plain language providing that the agency “shal have
power to grant or deny rehearing or to abrogate or modify its order without further hearing.” The court
noted that this provision gives FERC just four options upon receipt of a request for rehearing in an NGA
matter: (1) it could grant rehearing; (2) it could deny rehearing; (3) it could abrogate its order without
further hearing; or (4) it could modify the order without further hearing. The court further noted that the
statute clearly provides that a rehearing request should be “deemed denied” if none of the four
enumerated options occurs within 30 days.
The only remaining question, therefore, was whether granting rehearing only “for the limited purpose of
further consideration,” as is done in tolling orders, constitutes one of the four permissible actions that
could be considered acting upon the application and thus avoid “deemed denied” status under Section
717r. The court found that it does not. The court characterized a true grant of rehearing as necessarily
requiring “at least some substantive engagement with the application” and “cannot consist solely of a
grant of additional time to decide whether to grant rehearing.” The court determined that a tolling order
violates both of these principles. The court also pointed out that the tolling order was not even issued by
the Commission itself, but rather by a Commission Secretary who “has not been delegated authority to
‘act on’ the rehearing application.” The court concluded:
At bottom, what the Tolling Order did was delete the thirty-day time limit and the deemed-denied
provision from the s tatute. Section 717r(a) says in straightforward terms that the Commission’s
failure to act on a rehearing application within thirty days means that rehearing can be deemed
denied and the applicant can obtain judicial review . . . The Commission has rewritten the statute to
say that its failure to act within thirty days means nothing.
After discussing the impact of the Commission’s practice on applicants’ ability to obtain judicial review
of the agency’s action, the court found that “the Commission has no authority to erase and replace the
statutorily prescribed jurisdictional consequences of its inaction. Agencies, no less than courts, cannot
render statutory language a nullity and leave entire operative clauses with ‘no job to do.’”
The court also pointed out other legislation that explicitly al ows for agencies to “modify the
consequences of their inaction,” suggesting that Congress did not contemplate the use of tolling orders
because it did not authorize them with similarly explicit language.
Final y, the court acknowledged that it was breaking with previous judicial decisions in rejecting FERC’s
use of tolling orders. Rather than attempt to draw a factual distinction, the court simply concluded that it
was appropriate to do so in this case because the previous decisions took the “wrong path” and because
“intervening developments” in the law altered the foundation on which the previous decisions were made.
Based on this analysis, the court held that “after thirty days elapsed from the filing of a rehearing
application without Commission action, the Tolling Order could neither prevent a deemed denial nor alter
the jurisdictional consequences of agency inaction.” As a result, the court denied motions to dismiss the
petitions for review of the FERC certificate order and heard the petitioners’ substantive arguments to that
order (which it denied, holding that FERC was justified in finding market need for the Atlantic Sunrise
project).

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Potential Impact of the Allegheny Defense Project Decision
The Allegheny Defense Project decision has the potential to substantial y alter FERC proceedings going
forward, not just in pipeline certificate proceedings, but perhaps also in proceedings under the Federal
Power Act (FPA). The language in the FPA governing review of administrative orders under the Act is
substantial y similar to the language in the NGA that FERC has relied on in issuing tolling orders under
that act. As a result, the D.C. Circuit’s decision in Allegheny Defense Project wil likely affect the
agency’s ability to issue tolling orders in FPA proceedings, as wel . Indeed, in anticipation of the court’s
decision in Allegheny Defense Project, FERC issued new regulations in June that delay construction of
certificated pipelines until the Commission has acted on the merits of any requests for rehearing that it
receives. Congress could play a role in the debate over tolling orders. If it chose, Congress could amend
the NGA (and the FPA) to codify the requirement that rehearing requests be heard on the merits prior to
construction. Legislation that would accomplish this has already been introduced in the 116th Congress.
Alternatively, Congress could establish new requirements for FERC rehearing proceedings, including by
amending the number of days that must pass before the deemed-denied provision applies or re-
establishing FERC’s right to issue tolling orders.

Author Information

Adam Vann

Legislative Attorney

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