At the end of January, the D.C. Circuit denied rehearing en banc in Smith Lake Improvement and Stakeholder Association v. FERC.1  Smith Lake clarified when a party denied rehearing at the Federal Energy Regulatory Commission (FERC) should seek a second rehearing and when it should file a petition for review with an appellate court.  The court reiterated that a party to a FERC proceeding must file a petition for review within 60 days of FERC issuing an order on rehearing.  A party should seek a second rehearing with FERC only if FERC’s rehearing order significantly changed the outcome of the proceeding with regard to the party seeking rehearing.  The court also advised that a litigant who is uncertain as to whether a change in outcome is sufficiently significant should file a petition for review, rather than seeking a second rehearing, regardless of any notations FERC might have included in its rehearing order.

In Smith Lake, the D.C. Circuit dismissed as untimely a petition for review of a FERC order, because the petitioners had missed the 60-day window for filing a petition for judicial review after FERC denied their initial request for rehearing.  FERC had asked the court to hear the case on the merits, rather than dismiss it as untimely, because the petitioners had apparently believed they needed to file a second request for rehearing with FERC prior to seeking review.2  FERC was not the only entity sympathetic to the petitioners’ confusion.  On January 30, 2015, the D.C. Circuit denied rehearing of the case en banc.3  Unusually, the judges who comprised the original panel simultaneously issued a statement expressing sympathy for the petitioners’ position, chiding FERC for confusing notations, and amending their prior order, albeit without changing the result.4

The case arose from a hydroelectric relicensing proceeding.  The Smith Lake Improvement and Stakeholders Association (“Association”), composed primarily of persons owning property abutting Alabama Power Company’s (“Alabama Company”) Smith Lake Development, intervened in the Smith Lake relicensing proceeding at FERC.  The Association objected to Alabama Power’s proposal to maintain the lake at the same water levels as under its prior license.  FERC denied the Association’s proposed water-level change and issued a new license authorizing Alabama Power to operate under existing water-level benchmarks.  The Association timely filed for rehearing of the license order.  FERC affirmed the license order with regard to the water levels that interested the Association, but issued a clarification on another matter.  The Association then filed a second rehearing request, which FERC summarily denied, stating that its first rehearing request had addressed the Association’s arguments.  Sixty days after FERC’s summary denial of the second rehearing petition, the Association petitioned the D.C. Circuit for review.

The D.C. Circuit concluded that it lacked jurisdiction to hear the petition.  Under Section 313(b) of the Federal Power Act (FPA), a party petitioning for judicial review of a FERC order must file its petition within 60 days.5  However, although the Association had filed its petition within 60 days of the second rehearing order, the filing occurred 124 days after the first rehearing order.  As the court explained, it was the first rehearing order that started the 60-day clock, and the second request for rehearing did not toll it.

Under FPA 313(b), an appellate court has jurisdiction to review a FERC order only when a petitioner has exhausted its administrative remedies and then petitions the court for review within 60 days.  Normally, filing a petition for rehearing, and receiving an order denying rehearing from FERC, serves to exhaust administrative remedies.  However, “a second rehearing petition must be filed [with FERC] if—and only if—the first rehearing order modified the results of [FERC’s initial order] in a significant way.”6  The “significant” modification must also be a change in the outcome of the case, and not merely the reasoning.7  In Smith Lake, however, FERC’s first order on rehearing did not alter the outcome of the license order with regard to the issues of concern to the Association.  Therefore, the Association was not required to file a second request for rehearing to exhaust its administrative remedies.  Instead, pursuant to FPA 313(b), the Association had to file for review within 60 days of the first rehearing order.  Unfortunately for the Association, it chose to file another request for rehearing, perhaps because FERC’s first order on rehearing included a notation that “‘[t]he licensee’s failure to file a request for rehearing shall constitute acceptance of this order.’”8  In their statement accompanying the court’s denial of rehearing en banc, the judges noted that this was not the first time this had occurred, and it advised that “it would help interested parties to its decisions if FERC took greater care with this type of guidance.”9

In its briefs, the Association raised a further complication that the court attempted to address.  The Association described a “trap” where FERC, in an order on rehearing, does not change the outcome of its prior order, but does change its reasoning.  Under existing precedent, a party cannot “simultaneously seek both agency reconsideration and judicial review of an agency’s order.”10  However, FPA 313(b) states that a party cannot seek review of a FERC order if it has not previously objected to that order in a request for rehearing.11  So, what should a party do if the request for rehearing alters only the FERC’s reasoning, and the party objects to that new reasoning?

Drawing on precedent under the FPA’s sister statute, the Natural Gas Act, the D.C. Circuit concluded that the petitioner caught in this “trap” should petition for review, rather than seek rehearing.  “[W]hen a party seeks judicial review following a rehearing order that changes the reasoning without altering the result,”12 then that party may have reasonable grounds under the FPA for not having raised its objections earlier13 “and therefore be entitled to consideration of those arguments.”14  In the amended version of the order, the court clarified its discussion of the hypothetical situation where the party is unsure whether or not a change to the outcome in a rehearing order is “significant.”  In that case, the court urges parties to file a petition with the court, based again on having “reasonable grounds” for not having raised their arguments with the FERC a second time.