FERC Abandons Tax Allowance in MLP Pipeline Rate Setting and Signals Changes Due to Tax Act Rate Drop
D.C. Circuit and Second Circuit | November.08.2017
In the past week, the D.C. Circuit and Second Circuit have stayed pipeline construction on the Atlantic Sunrise and Valley Lateral Projects, respectively, following challenges to FERC orders allowing the projects to proceed. No explanation accompanied either order, but it appears that in both instances the courts were buying themselves some time to consider the challenges. That likely explanation is supported by the D.C. Circuit’s quick action late yesterday to lift the stay in Atlantic Sunrise. This is good news for Atlantic Sunrise and its producer-shippers as any unanticipated pause in pipeline construction, especially as winter approaches, can have negative consequences for tight construction and in-service schedules. The Valley Lateral Project, by contrast, is still in a holding pattern.
Atlantic Sunrise Project - Allegheny Defense Project, et al v. FERC, No. 17-1098
On February 3, 2017, FERC issued Transcontinental Gas Pipe Line Company LLC (“Transco”) a certificate of public convenience and necessity, authorizing it to construct and operate the Atlantic Sunrise Project. Eight environmental groups, largely Pennsylvania-based, petitioned the D.C. Circuit for review of FERC’s order on March 23, 2017. In the meantime, FERC issued a Notice to Proceed with Construction (“NTP”) on September 7, 2017. The petitioners then filed a motion for an emergency stay on October 30, 2017 seeking to halt construction of the pipeline until the D.C. Circuit issues its decision on the original petition, a deadline that is likely many months away.
The D.C. Circuit administratively stayed FERC’s Order Issuing Certificate on November 6, 2017. The Court clarified that “[t]he purpose of this administrative stay is to give the court sufficient opportunity to consider the emergency motion for stay and should not be construed in any way as a ruling on the merits of that motion.” Unlike the emergency stay, which would put construction on hold until the appeal ends, an administrative stay is a short-term tool that courts typically use to buy themselves time to read the briefs and decide whether the longer emergency stay pending appeal is appropriate. Late yesterday, approximately 48 hours after it granted the administrative stay, the D.C. Circuit dissolved it on the grounds that the petitioners “have not satisfied the stringent requirements for stays pending court review.”
Valley Lateral Project - New York State Department of Environmental Conservation v. FERC, No. 17-3503
On November 9, 2016, FERC issued Millennium Pipeline Company, L.L.C. (“Millennium”) a certificate of public convenience and necessity, authorizing it to construct and operate the Valley Lateral Project. Millennium then requested an NTP from FERC. To receive an NTP, Millennium had to demonstrate that it obtained all federally required environmental permits or authorizations, including under the Clean Water Act. The New York State Department of Environmental Conservation (“NYSDEC”) had not issued Millennium a § 401 water quality certification, but Millennium argued that FERC could issue an NTP anyway because NYSDEC had not acted on Millennium’s request for a certification within the one-year statutory deadline. NYSDEC responded that the one-year cutoff did not begin to run when Millennium requested certification but rather when it submitted a completed application. NYSDEC then denied Millennium’s application for the § 401 certification within a year of the “completed application.”
On September 15, 2017, FERC issued a Declaratory Order finding that NYSDEC had waived its authority to deny the § 401 certification by failing to act within one year of when Millennium requested certification. FERC then issued Millennium’s NTP on October 27, 2017. NYSDEC responded with an emergency writ of prohibition in the Second Circuit on October 30, 2017, seeking review of FERC’s determination that NYSDEC had waived its authority to deny a § 401 certification. NYSDEC also asked the Second Circuit to stay the “effectiveness” of the NTP while the Court considers the emergency petition. Unlike the petition challenging the FERC order in the Transco case, NYSDEC’s emergency writ seeks to resolve its entire challenge on an expedited basis.
On November 2, 2017, the Second Circuit issued a short order granting NYSDEC’s motion to stay the NTP “pending consideration of the petition by the next available three-judge panel.” The order was signed by Judge Carney only. Under Federal Rule of Appellate Procedure 18, a single judge may consider a motion for a stay of an administrative decision “in an exceptional case in which time requirements make that procedure impracticable.”
The Second Circuit has since ordered that briefing in the case be completed by November 28, 2017. The Court has not yet indicated whether it plans to hold an oral argument, but a decision is likely to follow expeditiously.
Although an administrative stay of pipeline construction is not common, it is not unprecedented and it does not—by its own explicit terms—signal how the Court is likely to rule on the emergency motion for a stay. The D.C. Circuit has used this tactic before in FERC cases (though infrequently), and each time it eventually dissolved the administrative stay and denied the emergency motion for a stay pending appeal within two weeks. Lifting the stay within 48 hours, as it did in Atlantic Sunrise, was especially speedy.
By contrast, the Second Circuit reviews far fewer FERC orders than does the D.C. Circuit, so there are few parallels to the Court’s November 2 stay. Moreover, Judge Carney’s short order does not indicate whether she believed NYSDEC’s claim was meritorious or whether NYSDEC had shown it would suffer irreparable harm. That a single judge granted the stay suggests it is more akin to an administrative stay along the lines of the D.C. Circuit’s order in the Atlantic Sunrise case and that time was the motivating factor. The expedited nature of NYSDEC’s challenge also means that a stay pending appellate review is a shorter-term stoppage than the Atlantic Sunrise challengers’ request for a stay pending a decision on its petition would have been. The Second Circuit’s order nonetheless carries added significance because it will result in a more extended delay in pipeline construction than the D.C. Circuit’s order.