On June 9, 2020, FERC ordered amendments to its regulations to prohibit natural gas projects authorized under Sections 3 and 7 of the Natural Gas Act (“NGA”) from commencing construction activities until after (i) the deadline for filing a request for rehearing has lapsed without a request being filed, or (ii) FERC has acted upon the merits of any timely-filed request for rehearing (“Order No. 871”). The new regulation will become effective, without any opportunity to file comments, 30 days after the Final Rule is published in the Federal Register. Because FERC’s orders on rehearing sometimes take several months, and in some cases more than a year to be issued, both liquefied natural gas (“LNG”) and natural gas pipeline projects approved by FERC could be significantly delayed from commencing construction as a result of Order No. 871.

The NGA authorizes FERC to impose “reasonable terms and conditions” as part of its approval of new natural gas facilities under NGA Sections 3 and 7. According to FERC’s website, FERC issued 29 certificate orders and 24 certificate orders in 2018 and 2019, respectively. To ensure FERC’s conditions are met, construction of newly authorized LNG and natural gas pipeline projects typically cannot proceed absent express authorization from the Director of the Office of Energy Projects (“OEP”). Because a request for rehearing does not operate as a “stay” of FERC’s initial Section 3 or Section 7 order, however, the Director of OEP has historically issued notices to proceed with construction activities despite any pending requests for rehearing.

Under Order No. 871, FERC will amend its regulations to preclude the issuance of notices to proceed with construction for newly authorized LNG and natural gas pipeline projects during the period when rehearing of FERC’s initial order may be sought or while any rehearing of such an order is still pending. FERC explained that its new regulation will “balance [its] commitment to expeditiously respond to parties’ concerns in comprehensive orders on rehearing and the serious concerns posed by the possibility of construction proceeding prior to the completion of Commission review[.]” FERC also noted in Order No. 871 that while its order is not yet effective, “as a matter of policy . . . the Commission will not authorize construction to proceed pending rehearing during the period before [Order No. 871] becomes effective.”

Together, FERC’s changes are particularly significant given its practice of issuing “tolling orders,” which extend FERC’s statutory 30-day deadline to act on requests for rehearing—in some cases, for upwards of over a year. According to data previously posted to FERC’s website, it takes FERC an average of approximately 7 months to issue any such orders on rehearing. Although FERC has recently defended its tolling practice as consistent with the NGA before the United States Court of Appeals for the District of Columbia Circuit, FERC has also acknowledged that protracted administrative delay hinders regulatory certainty and postpones parties’ ability to seek judicial review (see February 20, 2020 edition of the WER).

FERC has recently committed to expedite decisions on the merits of requests for rehearing of its NGA Section 3 and Section 7 certificate orders that implicate landowner rights. Regardless, in the case of more complex or significant natural gas and LNG projects, Order No. 871 could materially delay the start of project construction where FERC is unable to act on requests for rehearing on an expedited basis. Furthermore, issuing orders on rehearing quickly, particularly in proceedings involving large and complex projects, could also risk whether FERC’s order is ultimately upheld on appeal. The effects of Order No. 871 may also incentivize project opponents to challenge natural gas projects more frequently at FERC to ensure that the approved projects are further delayed before construction can commence.

Commissioner Richard Glick issued a separate statement concurring in part and dissenting in part with Order No. 871. Although the Final Rule is limited to precluding the commencement of construction activities while rehearing is pending, which Commissioner Glick applauded as a good “first step,” he argued in dissent that Section 7 certificates should be presumptively stayed pending rehearing in order to prevent the initiation of eminent domain proceedings in the interim.

The impact of this Order is significant, in that it will likely enhance the ability of project opponents to more effectively delay large, complex pipeline and LNG projects. It also puts additional pressure on FERC to issue rehearing orders more quickly, potentially making them more susceptible to legal challenges.

A copy of Order No. 871 can be found here.