Sabal Trail's Request for Rehearing Denied - What's next for the pipeline and industry?

In August of last year, the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit), in a 2-1 decision, found that the Federal Energy Regulatory Commission (FERC) had not adequately considered the greenhouse gas (GHG) emissions that could be indirectly caused by the construction of Sabal Trail and its related pipeline projects. Yesterday, the court denied requests by Sabal Trail and FERC for rehearing. If FERC can issue within seven days its final environmental document and an order reaffirming the issuance of the certificate for the projects, the DC Circuit decision should not impact the operation of the pipelines involved. However, for the industry, this case creates even more uncertainty about future appeals and how the reversal of FERC decisions could impact the operations of a pipeline already in-service.

A Brief Background

A disconcerting aspect of the DC Circuit's August decision for FERC and the industry is that the DC Circuit not only remanded the case to FERC for a more robust GHG analysis, but it also vacated the certificate order. In past DC Circuit decisions, the court did not vacate a certificate without conducting a thorough analysis of the seriousness of the order's deficiencies and the disruptive consequences that vacating the certificate might have on the applicant. Here, the court vacated the certificate without any discussion of these factors.

Not surprisingly, both FERC and the pipeline proponents filed for a rehearing by the panel that issued the decision and a rehearing by the entire court, asking the court to essentially follow its prior cases and undertake the expected analysis, which they asserted would lead to a simple remand of the case to FERC without putting the certificate authority for the pipeline at risk. These are the requests that the court denied yesterday without comment.

Impact on Sabal Trail and Related Projects

FERC issued a Draft Supplemental Environmental Impact Statement (Draft SEIS) on September 27, 2017 to address the deficiencies identified by the DC Circuit in its August order. Comments on the Draft SEIS were accepted until November 20, 2017, but FERC has yet to issue a Final SEIS. Under the order issued by the court back in August, the court's vacating of the FERC certificate would not take effect until seven days after the disposition of any timely petition for rehearing. Thus, the issuance yesterday creates the possibility that the authority to construct and operate the pipeline will terminate in seven days unless FERC takes some action before then.

The regulations regarding environmental review allows FERC to issue an order immediately upon issuance of the Final SEIS. While normally an agency decision must not be made until 30 days after the Final SEIS is issued, there is an exception for decisions that are subject to a formal internal appeal. Because FERC has a formal rehearing process for the order that would reaffirm the certificate, the regulations allow for the period for appeal of the decision and the 30-day period required following issuance of the Final SEIS to run concurrently. If FERC fails to reaffirm the certificate within seven days, FERC and the project proponents could seek a stay of the decision from the United States Supreme Court. Failing that, it would appear that the pipeline would need to cease operations until FERC could reaffirm the issuance of the certificate.

As explained by the project's proponents, Duke Energy needs the natural gas from the project so that its Citrus County power plant can enter service as scheduled in 2018. Duke cannot retire 1960s-era coal-fired power plants until the Citrus County plant is brought into service, and that plant is dependent on the project. Similarly, if FERC's certificates are vacated, Florida Southeast will be unable to construct the 5.2-mile lateral pipeline (scheduled for first-quarter 2018) that will serve as "the only source of natural gas" for the new Okeechobee Clean Energy Center, needed to meet growing demand. Without that project, Florida Power & Light and Duke will likely have to deploy more costly, less efficient, and less "clean" fuels, such as coal and fuel oil, to meet demand. We expect that the project proponents will be strongly urging FERC to take some action in the next seven days to avoid these adverse consequences.

Impact on the Industry

Perhaps the biggest impact on the industry from this case is that the ruling provides a precedent for future challenges to FERC decisions that will allow the court to vacate FERC decisions without undertaking the analysis required by the DC Circuit's own prior cases. The risk of a FERC certificate being vacated, prior to this decision, was considered very low because the court had to essentially find that the FERC error was so egregious that it outweighed the significant disruption that vacating the certificate would cause to an operating pipeline.

Now, it appears that the DC Circuit believes it can abandon any such analysis and order that the FERC decision be vacated for relatively minor errors in FERC's analysis. If, in fact, this is the DC Circuit's new position, the risk to project proponents has greatly increased. This decision could well be a response by the DC Circuit to past decisions in which the court simply remanded the case to FERC and was disappointed in the promptness of FERC's corrective action on remand. The risk for future projects is that FERC can not address the error identified by the DC Circuit as quickly as it could in this case, and that the court's decision becomes final before FERC takes remedial action, which could lead to shutdowns for operating pipelines.