Can an interstate natural gas pipeline continue to operate if a court vacates its certificate authorizations?

On January 31, 2018, in Sierra Club v. FERC, No. 16-1329 (D.C. Cir.), the United States Court of Appeals for the District of Columbia Circuit denied rehearing and rehearing en banc (before the full court) of petitions for rehearing filed by the Federal Energy Regulatory Commission (“FERC”) and jointly by Duke Energy Florida, Florida Power & Light, Florida Southeast Connection, Sabal Trail Transmission, and Transcontinental Gas Pipe Line (the “Supporting Intervenors”). The court’s orders raise the possibility that the court will issue its mandate and vacate FERC’s orders granting certificates of public convenience and necessity authorizing the construction and operation of the Florida Southeast Connection pipelines, which are currently transporting natural gas to power plants in Florida. If the court issues the mandate, FERC and the pipeline operators will be faced with whether, and if so how, the pipelines can continue to operate without the certificates.

By way of background, the court of appeals’ August 22, 2017 decision affirmed FERC’s finding of need for the pipeline projects, based upon Florida state regulators determining that Florida electric utilities need additional natural gas supply from the pipeline projects to meet growing electricity demand. However, the court found that FERC’s environmental review inadequately considered the indirect effects of downstream greenhouse gas emissions. The court vacated FERC’s certificate orders on that basis and remanded the orders with directions to conduct a supplemental environmental review.

Because FERC’s certificate orders remained effective pending appeal and were not stayed, the pipelines were constructed and placed into operation while the appeal was pending. The pipeline operators were aware that they were at risk if FERC’s certificate orders were overturned on appeal. By the time of the court’s opinion on August 22, 2017 vacating the certificates, the pipelines had been transporting gas to new power plants in Florida for over a month.

As the court remand required, the FERC staff issued a draft supplemental environmental impact statement (“SEIS”) on September 27, 2017 and established a comment period. FERC staff had not issued the final SEIS as of the date of the court’s orders denying rehearing, however, the SEIS was issued on February 5, 2018. The final SEIS, as required by the court’s August 22 opinion, seeks to quantify the possible maximum greenhouse gas emissions from power plants burning natural gas transported by the projects, provides context for those emissions in comparison to state and national emissions, and addresses the social cost of carbon. The final SEIS did not alter FERC staff’s original conclusion, adopted in the certificate order, that with mitigation and other measures, any environmental impacts would not be significant.

The court’s orders denying rehearing would have triggered the issuance of a mandate within seven days that would have vacated FERC’s certificate orders, leaving in question the ability of the pipelines to operate without a certificate. On February 6, 2018, FERC and the Supporting Parties filed motions for stay with the court. FERC asked for 45 days to complete its order on remand and the Supporting Parties asked for a 90-day delay of the mandate. By rule, the mandate will not issue until at least seven days after the court addresses the stay petitions, if it denies the petitions. On February 16, 2018, the Sierra Club and co-petitioners filed a response in opposition to the motions for stay of the mandate. FERC and the Supporting Parties responded on February 23, 2018. The motions remain pending before the court of appeals.

Separately, Sabal Trail, Florida Southeast Connection, and Transco filed with FERC for expedited issuance of the order on remand re-issuing the certificates or, in the alternative, an application for temporary emergency certificates under Section 7(c)(i)(B) of the Natural Gas Act and Section 157.17 of FERC’s rules to enable the pipelines to continue transporting gas if court issues the mandate. If the court denies the request to stay the mandate and issues such mandate, the orders would be vacated, but FERC could use the temporary emergency certificate process to permit the pipeline to continue operation pending the consideration and issuance of new certificates.

There is one other legal theory that may permit the pipelines to continue to transport natural gas if the certificate orders were vacated and FERC denies the requested temporary emergency certificates. Under Section 311(a)(1)(A) of the Natural Gas Policy Act of 1978 (“NGPA”) and subpart B of Part 284 of FERC’s transportation regulations, any interstate pipeline (defined as “any person engaged in natural gas transportation subject to the jurisdiction of the Commission under the Natural Gas Act”) may transport natural gas on behalf of an intrastate pipeline or local distribution company (“LDC”). Such transportation does not require a certificate under the Natural Gas Act or any other FERC action. If Sabal Trail and Florida Southeast Connection continue to be “interstate pipelines” even if the certificate orders are vacated (Transco is an existing interstate pipeline), the power plants could make arrangements with a Florida LDC to certify to the pipelines that the power plants are within its service territory or install a meter run at the delivery point to qualify as an on behalf of party.

The court of appeals’ denial of rehearing illustrates that at least the DC Circuit, although not yet willing to depart from long-established standards and grant a stay of pipeline projects while environmental groups or landowners appeal FERC’s certificate orders, remains interested in environmental impacts and is willing to question FERC’s environmental analysis and conclusions under NEPA if it finds that FERC has not adequately explore and address downstream environmental impacts or, potentially, other areas of concern under the environmental laws. Whether or not the mandate issues, the court’s decision likely will affect FERC future environmental review of natural gas pipeline projects as the FERC and its staff consider future certificates and enhance environmental review is doing so to ensure that the courts uphold FERC’s orders on review.